U.S. Government Debt Downgrade

U.S. Government Debt Downgrade

August 02, 2023

The U.S. governments debt rating was downgraded by one of the three main rating agencies (Fitch) as of Tuesday, August 1, 2023. Lawrence Gillum, Chief Fixed Income Strategist at LPL, details his interpretation of the downgrade and his opinion on how this will impact the market: 

"While not necessarily wrong in its assessment, the rating downgrade will likely not have an impact on U.S. government debt or markets broadly. The U.S. remains the safe haven during times of market stress and the downgrade will likely not change that. That was further evidenced by the (non) reaction from the bond market after the announcement. And this isn’t the first time the U.S. has been downgraded. In August 2011, S&P, which arguably carries more weight than Fitch, cut the U.S. rating from AAA to AA+, which is the current rating. At the time S&P noted that the downgrade “reflects our opinion that the … plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics”. And while that came as an initial surprise to markets, markets recovered in short order with the S&P 500 Index rebounding and finishing up the year nearly 20% off those lows."

Click here to read the full article and commentary. 

Commentary by Lawrence Gillum, CFA, Chief Fixed Income Strategist