US Debt Rating Not In Danger —For Now, Analysts Believe
Fears about a downgrade of the US sovereign credit rating are premature, but not entirely unwarranted after Britain's outlook was cut to negative by Standard & Poors, analysts told CNBC.
Stocks continued to wobble Friday amid worries about the outlook for the US debt rating. The US market bounced around between positive and negative territory, while Europe moved higher and Asia declined.
And President Barack Obama is not concerned about a possible change in the United States' triple-A credit rating, the White House said on Friday.
The dollar dropped to its lowest level this year on Friday and was on track for its biggest weekly fall in two months on concerns about the United States' AAA-rating status.
Moody's Investor Service on Thursday said it was comfortable with its triple-A sovereign rating on the United States, but the rating was not guaranteed forever.
US stocks tumbled on Thursday, triggered by fears that the US will go the way of the UK, Bill Gross, co-chief investment officer of bond fund Pimco, told CNBC. His view was shared by other analysts.
"It does leave the door open for a look at the US," Stuart Bennett, an economist at Calyon, told CNBC.com.
Hesitant to put the US on rating watch negative, S&P chose to warn the UK instead, other analysts agreed.
"I just see this as perhaps S&P doesn't have the nerve to downgrade the US or to put the US on watch, and so it's doing it to the UK. So this is really a warning shot across the bows of the US, and I think that is big news, actually," Giles Keating, head of research at Credit Suisse, told "Squawk Box Europe."
But for the world's biggest economy, the danger of a downgrade is not imminent.
"I would have thought they'd do everything they can to not downgrade," Bennett said.
The markets reacted too heavily Thursday, "because the likelihood that these two countries get downgraded will not be decided in 2009 and 2010," Michael Mewes, portfolio manager at JPMorgan Asset Management, said.
US in Better Position
Despite its increasing public debt, the US has more things going for it than the UK, Brian Coulton, managing director and head of global economics and European sovereigns at Fitch, told CNBC.
The public finances in the US are deteriorating, but the government has huge balance-sheet flexibility, helped by the dollar being reserve currency, according to Coulton.
"US dollar assets remain — by an awful way — the major asset of choice. And that gives the government funding flexibility," he told "Worldwide Exchange."
"In addition, the US economy is pretty flexible… we expect new sources of growth will emerge once stabilization has been achieved," Coulton said.
"You look at the two major countries which have a significantly higher debt levels than the UK and US, Japan and Italy… neither of those countries are in crisis. There's a lot of debt tolerance in there," he added.
Moody's Investors Service, another major rating agency, said Thursday it was comfortable with the AAA sovereign rating on the US, but that the rating was not guaranteed forever.
"There are longer-term pressures on the rating, that's very clear," Steven Hess, lead analyst for Moody's, told Reuters.
There is no actual risk that the UK will default on its debt, Duncan Weldon, a fund manager with Senhouse Capital, said.
"Let's be clear, we're talking about triple A to double A. There is no chance of the UK defaulting on its debt," Weldon said.
Rating agencies' credibility has been dealt a heavy blow following their failure to warn about the subprime crisis, in which securities rated as "junk" had been bundled together with AAA-rated paper, triggering a crisis of confidence and bringing trading in these instruments to a standstill.
But now, governments should not turn on the agencies for becoming more cautious, Keating said.
"To me there's an irony here. The rating agencies came under criticism during the crisis for not sounding an early enough warning bell. Now the very governments that were criticizing them are finding that the rating agencies are acting faster," he said.