Fitch Downgrade Prompts Slight Decline in US Treasury Yields
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| Fitch Downgrade Prompts Slight Decline in US Treasury Yields (Image Source: reuters.com) |
On August 2nd, in Tokyo, U.S. Treasury yields experienced a mild decline due to a credit rating downgrade by Fitch, a prominent ratings agency.
At 0017 GMT, the 10-year Treasury note saw a decrease of approximately 3.2 basis points (bps), settling at 4.015%. This movement marked a partial reversal of the 9 bps increase observed on the preceding Tuesday.
Fitch's recent decision involved a nighttime adjustment of the U.S. government's credit rating, transitioning it from AAA to AA+. The rationale behind this shift stemmed from anticipated fiscal deterioration over the upcoming three-year period, alongside a significant and escalating burden of general government debt. As early as May, Fitch had placed the rating on a watchlist for a potential downgrade.
In response to this development, Tony Sycamore, a markets analyst at IG, emphasized the likelihood of risk-averse trends emerging within Asian markets upon reopening.
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This sentiment could lead to diminished equities, increased safe-haven investments in currencies like the Japanese yen and Swiss franc, and heightened interest in purchasing Treasuries.
Fitch's announcement follows a two-month interval subsequent to the collaborative resolution of a debt ceiling disagreement between Democratic President Joe Biden and the Republican-dominated House of Representatives.
This agreement effectively raised the government's debt ceiling to $31.4 trillion after several months of intense political maneuvering.
Interestingly, Treasuries, which experience yield decreases as prices climb, were paradoxically acquired following the downgrade of the U.S. 'AAA' credit rating to 'AA-plus' by Standard & Poor's in 2011, during a prior episode of the debt ceiling impasse. This event unfolded against the backdrop of a recent debt ceiling dispute.
Reported by Kevin Buckland; Edited by Jacqueline Wong
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