Now S&P Threatens US AAA Credit Rating Downgrade

S&P warns of US downgrade if no debt deal reached (Reuters, July 15, 2011):

S&P Threatens US Downgrade, Sees ‘Small’ Default Risk (Wall Street Journal, July 15, 2011):

Treasuries Decline After S&P Says It May Reduce U.S. AAA Credit Rating (Bloomberg, July 15, 2011):

S&P Joins Moody’s, Dagong to Warn US Against Debt Default (International Business Times, July 15, 2011):

The chorus of voices warning against a US debt ceiling induced default is growing.

The S&P ratings agency said: “owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days.”

Earlier, China, through its government affiliated ratings agency Dagong, dished out some harsh words.

Dagong CEO said: “if the raised limit fails to pass and the US faces default, the rating will be immediately and substantially downgraded.”

S&P Sees ‘Small Risk’ of US Default (TheStreet, July 15, 2011):

“We still believe that the risk of a payment default on U.S. government debt obligations as a result of not raising the debt ceiling is small, though increasing,” the ratings agency said. “However, any default on scheduled debt service payments on the U.S.’ market debt, however brief, could lead us to revise the long-term and short-term ratings on the U.S. to ‘SD’ [selective default].”

More concerning for the markets may be S&P’s indication that it sees a 50-50 chance that it may cut its long-term rating on U.S. sovereign debt in the next three months.

“Since we revised the outlook on our ‘AAA’ long-term rating to negative from stable on April 18, 2011, the political debate about the U.S.’ fiscal stance and the related issue of the U.S. government debt ceiling has, in our view, only become more entangled,” S&P wrote, adding later: “Consequently, we believe there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.”

The ratings agency said its most likely move would be to cut the long-term rating by one or more notches into the ‘Aa’ category if it concludes “that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.”

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