The last AAA rating of the United States is also at risk? Moody's warns of government shutdown, US bond yields continue to rise

Moody's is currently the only one of the world's top three rating agencies that still gives the United States the highest AAA credit rating. However, with the possibility of a government shutdown looming, the company says its confidence is wavering.

On Monday, analysts William Foster and others stated in a report:

• While the debt payments of the U.S. government will not be affected, and a brief government shutdown is unlikely to disrupt the economy, it will highlight the vulnerability of the United States in terms of its institutions and governance compared to other AAA-rated sovereign countries we have covered in recent years.
• Following the "edge-of-the-cliff policy procrastination battle" over the U.S. federal debt ceiling earlier this year, a government shutdown will demonstrate a period of decline in U.S. fiscal strength, with continued fiscal deficits and deteriorating debt affordability, further exacerbating the significant constraints on U.S. fiscal policy formulation caused by ongoing political polarization.
• The impact of a U.S. government shutdown will mainly be felt in areas where the government is heavily concentrated and will depend on the duration of the shutdown.

Moody's latest report does not change its credit rating for the United States, and the outlook remains unchanged. Although Moody's does not threaten to downgrade the United States in the report, it expresses its concern about the progress of short-term spending bill negotiations in Congress in unusually blunt language. The bill aims to prevent a government shutdown.

The market is highly concerned about Moody's actions regarding the credit rating of the United States. Analysts say that Moody's latest report indicates that the sustainability of U.S. debt and the politics surrounding it will continue to be a theme for the remainder of this year.

Among the world's top three rating agencies, only Moody's still maintains a AAA rating for the United States:

• On August 1st of this year, Fitch downgraded the United States' long-term foreign currency debt rating from AAA to AA+, with the outlook changing from negative to stable. This is the first time Fitch has downgraded its rating for the country since it first issued a credit rating for the United States in 1994. Fitch's downgrade of the U.S. rating reflects the expected deterioration of U.S. fiscal conditions over the next three years, high overall government debt burden, and continuous growth.
• On August 5, 2011, Standard & Poor's announced a one-notch downgrade of the United States' AAA long-term sovereign debt rating to AA+ due to issues such as the debt ceiling crisis, with a "negative" outlook. This was the first time the United States lost its 3A sovereign credit rating since S&P began sovereign ratings in 1941, breaking the myth of maintaining the highest rating for nearly a century.

Currently, the U.S. Congress is working to pass a short-term spending bill to prevent a government shutdown when the new U.S. fiscal year begins in October. However, due to the strong demand from the right-wing of the Republican Party to cut massive additional aid to Ukraine, and their firm stance, there is almost no room for compromise between the two parties, and the likelihood of reaching a budget agreement is diminishing. Many analysts believe that the probability of a U.S. government shutdown on October 1st is basically 100%.

Moody's says that a government shutdown will have a negative impact on the United States' credit rating and further increase U.S. bond yields. On Monday, the yield on the benchmark 10-year U.S. Treasury bond rose by 11.20 basis points, reaching a high of 4.5457% since October 18, 2007. The peak that year was 5.3228% on June 13th. The two-year US Treasury yield rose by 1.73 basis points to 5.1271%, trading in a range of 5.0969% to 5.1357% during the session.