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Moody’s Downgrade Warning Increases Pressure on U.S. Debt Deal
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Moody’s Investors Service raised the pressure on U.S. lawmakers to increase the government’s $14.3 trillion debt limit by placing the nation’s credit rating under review for a downgrade. The U.S., rated Aaa since 1917, was put on review for the first time since 1995 on concern the debt threshold will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low, Moody’s said in a statement yesterday. The rating would likely be reduced to the Aa range and there is no assurance that Moody’s would return its top rating even if a default is quickly cured. President Barack Obama is considering summoning congressional leaders to Camp David this weekend to work on a plan to raise the debt ceiling after yesterday’s negotiations on a deficit-cutting plan of at least $2 trillion stalled, longchamp sale according to two people familiar with the matter. A failure to raise the debt limit that causes a default may lead to slower economic growth and another financial crisis. “It’s obviously very serious in so many different ways,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of 20 primary dealers that trade bonds with the Federal Reserve. “Most people still believe there will be some type of an agreement struck to avoid all this stuff, and that’s what the market’s banking on.” The dollar weakened and Treasuries were little changed after the Moody’s statement. IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, including the euro, yen and pound, slid for a second day, shedding 1.2 percent. The 10-year note yield was little changed at 2.88 percent yesterday in New York, according to Bloomberg Bond Trader prices, after increasing earlier as much as eight basis points to 2.96 percent. The yield dropped to 2.81 percent, the lowest since Dec. 1. The price of the 3.125 percent security due in May 2021 declined 1/32, or 31 cents per $1,000 face amount, to 102 2/32. The Aaa ratings of financial institutions directly linked to the U.S. government, including Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks, were also put on review for cuts, Moody’s said. It also placed 7,000 municipal ratings on review for possible downgrade. “What we’re looking for is a raising of the limit. It doesn’t matter the process that they get there,” Steven Hess, the senior credit officer at Moody’s in New York, said in a telephone interview. Senate Republican Leader Mitch McConnell proposed a “last choice option” on July 12 that effectively would grant Obama power to raise the debt limit in installments. McConnell’s plan would let the president raise the limit in three stages unless Congress disapproves by a two-thirds majority, while Obama would also be required to propose offsetting spending cuts. The spending reductions would be advisory, and the debt-ceiling increase would occur regardless of whether lawmakers enact the cuts. Obama “abruptly” walked out of yesterday’s White House meeting with legislative leaders on the federal deficit, House Majority Leader Eric Cantor, a Republican from Virginia, told reporters. “This report underscores the warning I outlined months ago,” House Speaker John Boehner, Republican of Ohio, said in a statement. “If the White House does not take action soon to address our nation’s debt crisis by reining in spending, the markets may do it for us.”
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Posted on : Jul 14, 2011
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