Moody’s affirms U.S. as ‘Aaa,’ but T-bond yields keep rising
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The U.S. isn’t in danger of losing its top credit rating any time soon, despite the government’s soaring debt load, Moody’s Investors Service said today.
But that isn’t providing any comfort to the Treasury bond market, which is selling off yet again, driving yields higher. Mortgage rates could follow.
From Bloomberg News:
The U.S. government’s Aaa credit rating is stable “even with a significant deterioration” in the nation’s debt, Moody’s Investors Service said, signaling confidence in a rebound from the recession. The U.S. rating is supported by “a diverse and resilient economy, strong government institutions, high per-capita income, and a central position in the global economy,” Moody’s said in a statement. At the same time, the firm warned that any “reassessment” of long-term growth prospects could put pressure on the rating.
This is all boilerplate stuff from Moody’s, but the timing of the announcement is what counts: Rival rating firm Standard & Poor’s last week shook up the global bond market with its warning that Britain could lose its AAA rating as the country’s debt burden mounts.
The S&P red flag on Britain raised fears that the U.S., too, might be at risk of a downgrade, which would lump us with Spain and Ireland, both of which lost their AAA ratings this year.
But Moody’s said it believed that ‘U.S. economic strength will emerge after the crisis without major impairment.”
That may be, but it isn’t stopping investors from continuing to demand higher yields on Treasury securities as new bonds flood the market and as inflation worries reemerge. Although the government had no trouble selling $35 billion of five-year notes today, yields on Treasuries have risen across the board, to fresh six-month highs.
The 10-year T-note yield, a benchmark for mortgage rates, has surged to 3.74%, up from 3.49% on Tuesday. It was 3.20% a week ago.
The jump in Treasury yields this week also is driving up rates on mortgage-backed bonds, which in turn could translate into rising rates on new home loans -- the last thing the housing market needs.
-- Tom Petruno