Fitch cut the US’s sovereign credit grade one level from AAA to AA+. The move comes just two months after it warned the rating was under threat as lawmakers flirted with default by battling over raising the nation’s debt limit. Fitch nonetheless said that the repeated debt-limit clashes and last eleventh-hour resolutions have eroded confidence in the country’s fiscal management.
Fitch’s action echoed one made in 2011 by S&P Global Ratings, which was never reversed. Although few investors see Treasuries shedding their status as the safest haven and most reliable source of collateral, the downgrade is still a spotlight on the worsening US fiscal outlook. The move by Fitch now gives the US two AA+ ratings. That could also raise a problem for funds or index trackers with a AAA-only mandate, opening up the possibility of forced sales for compliance reasons. Moody’s Investors Service still rates the US sovereign Aaa, its top grade.