Fitch Ratings on Tuesday became the second major credit firm to cut the U.S. government’s top AAA rates to AA+, a move that was swiftly condemned by the White House and the Treasury Department.
But if the past can be a guide, the big reaction in financial markets might actually be a rally in the roughly $25 trillion market for Treasury securities. S&P Global Ratings downgraded the U.S. credit rating in 2011 to AA+ from AAA, in the days after a debt-ceiling deal was reached in Washington. At the same time, the concerns that Fitch cited for the downgrade could also create anxieties in the market, driving investors to assets traditionally viewed as being a safe haven, he said.
Investors have been snapping up the deluge of Treasury securities issued since the June debt-ceiling deal allowed U.S. coffers to be refilled, albeit at higher borrowing costs than in the recent past.