US foreign currency debt ratings being downgraded, but the negative impact should not be long-lasting 🤨

To further ‘rub salt in the wound’, Fitch Ratings announced after the market-close that it has cut its long-term foreign-currency issuer rating on the US to AA+, stating “the repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management”.  While the headlines sound ominous, we would caution against any over-reaction against the headlines, as the S&P’s last rating cut back in 2011 actually led to a drop in US yields and a rise in the USD as a counter-intuitive “flight to quality” reaction. We would be surprised to see any lingering and negative price impact on bond yields from this action alone.

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