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In what has become a perennial exercise before every debt-ceiling showdown since at least Obama’s first term (when S&P did the unthinkable and cut the US’s coveted AAA credit rating, exposing itself to extensive abuse by Tim Geithner), ratings agencies are starting to beat the credit-rating downgrade drum, with Fitch getting a jump on the competition Wednesday when its head of sovereign ratings warned that an enduring shutdown battle could negatively impact the negotiations over the debt ceiling, which could prompt Fitch to join S&P in eliminating its AAA rating for the US.

During an interview with CNBC and a separate appearance in London (where his comments were recorded by Reuters), Fitch’s global head of sovereign ratings James McCormack warned of a possible cut to its AAA rating for the U.S. sovereign should the shutdown continue to March, noting that the shutdown and debt ceiling battle are adding to anxieties triggered by President Trump’s tax cuts and spending hikes, which have blown out the budget deficit and led to a “meaningful fiscal deterioration.”

“I think people are looking at the CBO (Congressional Budget Office) numbers. If people take the time to look at that you can see debt levels moving higher, you can see the interest burden in the U.S. government moving decidedly higher over the next decade,” James McCormack, Fitch’s global head of sovereign ratings told CNBC’s “Squawk Box Europe” on Wednesday.

There needs to be some kind of fiscal adjustment to offset that or the deficit itself moves higher and you’re essentially borrowing money to pay interest on the debt. So there is a meaningful fiscal deterioration there, going on the United States.”

Watch his interview with CNBC below:

…click on the above link to read the rest of the article…

Italy’s Debt Crisis Thickens

October 19, 2018

Italy’s Debt Crisis Thickens

But outside Italy, credit markets are sanguine, and no one says, “whatever it takes.”

Italy’s government bonds are sinking and their yields are spiking. There are plenty of reasons, including possible downgrades by Moody’s and/or Standard and Poor’s later this month. If it is a one-notch downgrade, Italy’s credit rating will be one notch above junk. If it is a two-notch down-grade, as some are fearing, Italy’s credit rating will be junk. That the Italian government remains stuck on its deficit-busting budget, which will almost certainly be rejected by the European Commission, is not helpful either. Today, the 10-year yield jumped nearly 20 basis points to 3.74%, the highest since February 2014. Note that the ECB’s policy rate is still negative -0.4%:

But the current crisis has shown little sign of infecting other large Euro Zone economies. Greek banks may be sinking in unison, their shares down well over 50% since August despite being given a clean bill of health just months earlier by the ECB, but Greece is no longer systemically important and its banks have been zombies for years.

Far more important are Germany, France and Spain — and their credit markets have resisted contagion. A good indicator of this is the spread between Spanish and Italian 10-year bonds, which climbed to 2.08 percentage points last week, its highest level since December 1997, before easing back to 1.88 percentage points this week.

Much to the dismay of Italy’s struggling banks, the Italian government has also unveiled plans to tighten tax rules on banks’ sales of bad loans in a bid to raise additional revenues. The proposed measures would further erode the banks’ already flimsy capital buffers and hurt their already scarce cash reserves. And ominous signs are piling up that a run on large bank deposits in Italy may have already begun.

…click on the above link to read the rest of the article…

Italian Bonds Slide After Official Warns Credit Rating Downgrade Possible

October 17, 2018

Italian Bonds Slide After Official Warns Credit Rating Downgrade Possible

After starting off strong, Italian 10Y Yields have leaked wider all morning after a senior government official said on Wednesday that Italy’s 2019 budget may be rejected by the European Commission and a credit rating downgrade is also possible.

“Let’s say that the premise is there” for the commission to start an infraction process over the budget, Stefano Buffagni, cabinet undersecretary for regional affairs, said in an interview with Radio Capital cited by Reuters.

“Premier (Giuseppe) Conte is going to the EU to explain the motivations” behind the budget, he added.

With Moody’s and Standard & Poor’s due to review Italy’s credit rating this month, Buffagni said a downgrade “can’t be excluded and we must be ready” in case it happens. He added, however, that he did not think a downgrade would be justified because “Italy has very solid economic fundamentals”.

Meanwhile, Deutsche Bank economists said they think that Italy is squarely on a collision course with the European Commission, whose President Juncker said yesterday that there would be a “violent reaction” from other euro area countries if the Italian budget were to be approved.

The Commission has two weeks to decide on whether to ask for budget revisions. Nevertheless, Italian assets gained yesterday in the first trading session since the government finalized the budget plan amid the broad market euphoria. The FTSE-MIB gained +2.23%, pacing gains in Europe, and 10- year BTPs rallied -9.3bps, however much of this move is being reversed on Wednesday. Partially this reflected the broader risk-on sentiment yesterday, but it may also have been a reaction to a new poll showing Five Star + Northern League support at 58.6%, still a majority but at its lowest level in over six weeks.

Moody’s Threatens US Downgrade Due To Soaring Debt, “Fiscal Deterioration”

February 9, 2018

Moody’s Threatens US Downgrade Due To Soaring Debt, “Fiscal Deterioration”

Back in 2011, Standard & Poors’ shocked the world, and the Obama administration, when it dared to downgrade the US from its vaunted AAA rating, something that had never happened before (and led to the resignation of S&P’s CEO and a dramatic crackdown on the rating agency led by Tim Geithner).

Nearly seven years later, with the US on the verge of another government shutdown and debt ceiling breach (with the agreement reached only after the midnight hour, literally) this time it is Warren Buffett’s own rating agency, Moody’s, which on Friday morning warned Trump that he too should prepare for a downgrade form the one rater that kept quiet in 2011. The reason: Trump’s – and the Republicans and Democrats – aggressive fiscal policies which will sink the US even deeper into debt insolvency, while widening the budget deficit, resulting in “meaningful fiscal deterioration.”

In short: a US downgrade due to Trumponomics is inevitable. And incidentally, with today’s 2-year debt ceiling extension, it means that once total US debt resets at end of day – unburdened by the debt ceiling – it will be at or just shy of $21 trillion.

We expect if not a full downgrade, then certainly a revision in the outlook from Stable to Negative in the coming months.

Here’s Moodys:

The stable credit profile of the United States (Aaa stable) is likely to face downward pressure in the long-term, due to meaningful fiscal deterioration amid increasing levels of national debt and a widening federal budget deficit. However, the US economy is very strong, wealthy, dynamic and well diversified, and its role in the global financial system is unmatched. These factors help compensate for the impending fiscal weakness, Moody’s Investors Service says in a new report.

…click on the above link to read the rest of the article…

China Downgrades US Credit Rating From A- To BBB+, Warns US Insolvency Would “Detonate Next Crisis”

January 16, 2018

China Downgrades US Credit Rating From A- To BBB+, Warns US Insolvency Would “Detonate Next Crisis”

In its latest reminder that China is a (for now) happy holder of some $1.2 trillion in US Treasurys, Chinese credit rating agency Dagong downgraded US sovereign ratings from A- to BBB+ overnight, citing “deficiencies in US political ecology” and tax cuts that “directly reduce the federal government’s sources of debt repayment” weakening the base of the government’s debt repayment.

Oh, and just to make sure the message is heard loud and clear, the ratings, which are now level with those of Peru, Colombia and Turkmenistan on the Beijing-based agency’s scale of creditworthiness, have also been put on a negative outlook.

In a statement on Tuesday, Dagong warned that the United States’ increasing reliance on debt to drive development would erode its solvency. Quoted by Reuters, Dagong made specific reference to President Donald Trump’s tax package, which is estimated to add $1.4 trillion over a decade to the $20 trillion national debt burden.

“Deficiencies in the current U.S. political ecology make it difficult for the efficient administration of the federal government, so the national economic development derails from the right track,” Dagong said adding that “Massive tax cuts directly reduce the federal government’s sources of debt repayment, therefore further weaken the base of government’s debt repayment.”

Projecting US funding needs in the coming years, Dagong said a deterioration in the government’s fiscal revenue-to-debt ratio to 12.1% in 2022 from 14.9% and 14.2% in 2018 and 2019, respectively, would demand frequent increases in the government’s debt ceiling.

“The virtual solvency of the federal government would be likely to become the detonator of the next financial crisis,” the Chinese ratings firm said.

…click on the above link to read the rest of the article…

Connecticut Capital Hartford Downgraded To Deep Junk, S&P Says “Default Virtual Certainty”

September 26, 2017

Connecticut Capital Hartford Downgraded To Deep Junk, S&P Says “Default Virtual Certainty”

Two months after S&P downgraded the state capital of Connecticut, Hartford, to junk, when it cuts its bond rating from BB+ to BB- citing growing liquidity pressures and weaker market access, the city which has been rumored is preparing to file for bankruptcy protection and which has seen an exodus of corporations and businesses in recent months, just got more bad news when S&P downgraded it by a whopping 4 notches deeper into junk territory, from BB- to CC, stating that “a default, a distressed exchange, or redemption appears to be a virtual certainty.”

“The downgrade to ‘CC’ reflects our opinion that a default, a distressed exchange, or redemption appears to be a virtual certainty,” said S&P Global Ratings credit analyst Victor Medeiros.

The rating agency also warned that it could take additional action to lower the rating to ‘Default’ if the city executes a bond restructuring or distressed exchange, or files for bankruptcy.

In our view, the potential for a bond restructuring or distressed exchange offering has solidified with the news that both bond insurers are open to supporting such a measure in an effort to head off a bankruptcy filing. Under our criteria, we would consider any distressed offer where the investor receives less value than the promise of the original securities to be tantamount to a default.

In short: while Chicago has so far dodged the bullet, the capital of America’s richest state (on a per capita basis), will – according to S&P – be also the first to default in the coming months.

Full S&P note below:

Hartford, CT GO Debt Rating Lowered Four Notches To ‘CC’ On Likely Default

…click on the above link to read the rest of the article…

S&P Downgrades China To A+ From AA- Due To Soaring Debt Growth

September 21, 2017

S&P Downgrades China To A+ From AA- Due To Soaring Debt Growth

Four months after Moody’s downgraded China to A1 from Aa3, unwittingly launching a startling surge in the Yuan as Beijing set forth to “prove” just how stable China truly is, moments ago S&P followed suit when the rating agency also downgraded China from AA- to A+ for the first time since 1999 citing risks from soaring debt growth, less than a month before the most congress for Chiina’s communist leadership in the past five years is set to take place. In addition to cutting the sovereign rating by one notch, S&P analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. are unlikely to avoid default should the nation default on its sovereign debt. Following the downgrade, S&P revised its outlook to stable from negative.

“China’s prolonged period of strong credit growth has increased its economic and financial risks,” S&P said. “Since 2009, claims by depository institutions on the resident nongovernment sector have increased rapidly. The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.”

According to commentators, the second downgrade of China this year represents ebbing international confidence China can strike a balance between maintaining economic growth and cleaning up its financial sector, Bloomberg reported. The move may also be uncomfortable for Communist Party officials, who are just weeks away from their twice-a-decade leadership reshuffle.

The cut will “have a relatively big impact on Chinese enterprises since corporate ratings can’t be higher than the sovereign rating,” said Xia Le, an economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “It will affect corporate financing.”

…click on the above link to read the rest of the article…

China “National Team” Rescues Stocks As Downgrade Crushes Commodities

May 24, 2017

China “National Team” Rescues Stocks As Downgrade Crushes Commodities

Iron ore led a slump in industrial commodities after Moody’s Investor Service downgraded China’s credit rating and warned that the country’s debt position will worsen as its economic expansion slows. However, one glance at the divergence between industrial metals’ collapse and the sudden buying panic in Chinese stocks confirms what Asher Edelman noted yesterday about the US markets, China’s so-called “National Team” was clearly intervening…

As Bloomberg reports, Iron ore futures on the Dalian Commodity Exchange fell as much as 5.6 percent to 452 yuan a metric ton, almost by the daily limit, before closing at 455.50 yuan, extending Tuesday’s 3 percent loss. Nickel led a broad slump among base metals, dropping as much as 2.4 percent to $9,125 a ton on the London Metal Exchange. Nickel stockpiles rose the most in more than a year.

In context, the overnight reversal in Chinese stocks is even more obvious…

Moody’s move, downgrading China’s debt to A1 from Aa3, adds to concerns about the effects of a slowdown in the country’s economic growth, following on from downbeat manufacturing readings and weak commodity imports, Simona Gambarini, an analyst at Capital Economics Ltd., said by phone from London. “We’re not particularly concerned about credit growth getting out of hand, but in regards to industrial metals, we have been negative on the outlook for some time on the basis that Chinese growth will slow.”

Will The National Team be back tonight?

Moody’s Downgrades France, Blames “Political Constraints”, Sees No Material Reduction In Debt Burden

September 19, 2015

Moody’s Downgrades France, Blames “Political Constraints”, Sees No Material Reduction In Debt Burden

Citing “continuing weakness in the medium-term growth outlook,” Moody’s has downgraded France:

*FRANCE CUT TO Aa2 FROM Aa1 BY MOODY’S, OUTLOOK TO STABLE

Apearing to blame The EU’s “institutional and political constraints,” Moody’s expects French growth to be at most 1.5% and does not expect the debt burden to be materially reduced this decade.

Moody’s Investors Service has today downgraded France’s government bond ratings by one notch to Aa2 from Aa1. The outlook on the ratings is stable.

The key interrelated drivers of today’s action are:

1. The continuing weakness in France’s medium-term growth outlook, which Moody’s expects will extend through the remainder of this decade; and

2. The challenges that low growth, coupled with institutional and political constraints, poses for the material reduction in the government’s high debt burden over the remainder of this decade.

At the same time, France’s credit worthiness remains extremely high, supporting an Aa2 rating. The country’s significant strengths include: (i) a large, wealthy, and well-diversified economy with a high per capita income, (ii) favourable demographic trends as compared to other advanced economies, and (iii) a strong investor base and low financing costs. The rating and its stable outlook are also supported by the country’s efforts to stabilise its public sector finances and initiatives recently deployed or announced to arrest the erosion of the economy’s competitiveness.

In a related rating action, Moody’s has today announced its decision to downgrade the ratings of the Société de Prise de Participation de l’État (SPPE) to Aa2 from Aa1. The SPPE’s short-term rating was affirmed at P-1, including its euro-denominated commercial paper programme. The outlook on the ratings is stable. The debt instruments issued by the SPPE are backed by unconditional and irrevocable guarantees from the French government.

…click on the above link to read the rest of the article…

Fitch Downgrades Japan To A From A+

April 27, 2015

Fitch Downgrades Japan To A From A+

With the USDJPY’s ascent to 125, 150 and higher having seemingly stalled just under 120, with concerns that the BOJ may not monetize more than 100% of its net debt issuance suddenly surfacing, the BOJ and the Nikkei would take any help they could get. They got just that an hour ago when Fitch downgraded Japan’s credit rating from A+ to A, citing lack of sufficient structural fiscal measures in FY15 budget to replace deferred consumption tax increase.

But don’t panic, Fitch says: it expects Japan’s gross debt to GDP ratio to “stabilize around 250% of GDP in 2020.” Perhaps the fact that Fitch did not predict the complete collapse of the Japanese economy is why the USDJPY spiked then promptly reversed and is trading almost unchanged, the same as Nikkei futures.

See, if Fitch had predicted a stabilization level of 2,500%, then Japanese stocks would be limit up today. Because remember: in the New Normal, only a completely socio-economic collapse and terminal currency devaluation leads to limit up in regional stock markets.

As to what really prompted the downgrade, which the BOJ was hoping would lead to a far more negative reaction for the JPY, here it is:

Full Fitch note:

Fitch Ratings-Hong Kong-27 April 2015: Fitch Ratings has downgraded Japan’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to ‘A’ from ‘A+’.

The issue ratings on Japan’s senior unsecured foreign and local currency bonds are also downgraded to ‘A’ from ‘A+’.
The Outlooks on the Long-Term IDRs are Stable.
The Country Ceiling is downgraded to ‘AA’ from ‘AA+’ and the Short-Term Foreign Currency IDR is downgraded to ‘F1’ from ‘F1+’.

KEY RATING DRIVERS

The downgrade of Japan’s IDRs reflects the following key rating drivers:-

…click on the above link to read the rest of the article…

S&P Cuts Russia To Junk, Ruble Plunges To 6-Week Lows – Full Text

January 26, 2015

S&P Cuts Russia To Junk, Ruble Plunges To 6-Week Lows – Full Text

With the Ruble having plunged 3 handles today alone, it appears perhaps more than a few could see this coming…

RUSSIAN FEDERATION RATINGS CUT TO JUNK BY S&P
RUSSIAN FEDERATION CUT TO BB+ FROM BBB- BY S&P; OUTLOOK NEG

Putting it below investment grade for the first time in a decade. Of course, this happens just 6 days after the news first leaked that S&P would pay a $1.5 billion settlement to the US DoJ over downgrading America: one wonders just what else was in the small print?

The downgrade comes on a day when The Russia Agriculcural Bank failed to sell 10Y bonds into the market. Russian stocks (ADRs) and the Ruble continue to slide on this news.

Here are a few countries that are now rated higher than Russia…

…click on the above link to read the rest of the article…

Fitch Downgrades Ontario Long-Term Debt, Notes Risks On Path To Balanced Budget

December 20, 2014

Fitch Downgrades Ontario Long-Term Debt, Notes Risks On Path To Balanced Budget.

TORONTO – Fitch Ratings downgraded Ontario’s long-term debt rating Friday, highlighting “risks” on the path to the Liberal government’s target of balancing the budget by 2017-18.

The rating agency cut its long-term issuer default rating to AA- from AA, saying “difficult actions” will be necessary for the province to achieve its target of eliminating the $12.5-billion deficit.

“Budget options are likely to prove more limited given the extent of actions taken to date and use of one-time actions to achieve targets, in Fitch’s opinion,” the agency said.

“The downgrade to AA- reflects Fitch’s concern that risks remain to achieving its goals and both debt burden and the accumulated deficit will remain significantly elevated.”

Ontario Finance Minister Charles Sousa said the government remains committed to eliminating the deficit by 2017-18, but the Fitch announcement underscores the challenges the province’s economy faces.

…click on the above link to read the rest of the article…

The Three Reasons Why Moody’s Just Downgraded Japan From Aa3 To A1 | Zero Hedge

December 1, 2014

The Three Reasons Why Moody’s Just Downgraded Japan From Aa3 To A1 | Zero Hedge.

Less than two weeks ago we were delighted to remind S&P that about a year ago, the laughable rating agency which is now terrified of being sued any time it tells the truth, promised it would downgrade Japan the moment things for the insolvent nation turn up to be, well, just as they are with the Bank of Japan now monetizing every yen of Japanese debt issuance. And yet, so far S&P has been very quiet on the downgrade front, most likely because it still has its hands full on the litigation front with the DOJ (and Tim Geithner) for downgrading the US back in 2011. So overnight we were not exactly surprised when that “other” rating agency, Moody’s, shocked the world and headline scanning algos when it downgraded Japan by 1 notch from Aa3 to A1.

Here are the reasons why Moody’s just did what it did, just two weeks ahead of the all-important for Abenomics snap election, in which should support for Abe tumble, then all bets on Abenomics, and the global stock market reflation game, are off.

The key drivers for the downgrade are the following:

Heightened uncertainty over the achievability of fiscal deficit reduction goals;
Uncertainty over the timing and effectiveness of growth enhancing policy measures, against a background of deflationary pressures; and
In consequence, increased risk of rising JGB yields and reduced debt affordability over the medium term.

…click on the above link to read the rest of the article…

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