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US keeps AAA rating by Fitch as outlook raised

The outlook on the US’s AAA credit-ranking was raised to stable from negative by Fitch Ratings after Congress suspended the nation’s debt limit for more than a year, reducing the risk of a default, and as federal deficits decline.

The ratings company’s adjustment follows Moody’s Investors Service and Standard & Poor’s, which raised their outlooks last year on the US to stable from negative. S&P stripped America of its top grade in August 2011, citing, in part, political wrangling about the debt limit. Moody’s gives the nation its top Aaa grade.

The issuer of the world’s reserve currency avoided a downgrade as stronger growth is forecast by a government agency to reduce the budget deficit to a seven-year low as a share of the economy.

“While the mood in Washington is anything but collegial,” there have been some signs of increased cooperation, Tony Crescenzi, executive vice president at Newport Beach, California-based Pacific Investment Management Co, said in an e-mail before the outlook change, citing lawmakers’ agreement on budget outlays in 2014.

Investors routinely ignore ratings companies’ decisions. In almost half the instances, yields on government bonds fall when a rating action by Moody’s and S&P suggests they should climb, or they increase even as a change signals a decline, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s. When S&P downgraded the US government in August 2011, bonds rose and pushed Treasury yields down to records.

The benchmark 10-year Treasury note yield was little changed at 2.77 per cent at 6:46am in New York, according to Bloomberg Bond Trader prices.

The 2.75 per cent note due in February 2024 steady at 99 26/32.