Scenario analysis on the US debt limit impasse from Moody’s

In the statement made by the international credit rating agency Moody’s, it was reminded that the US Treasury Secretary Janet Yellen, in her last letter to Congress, suggested that the debt limit measures could be exhausted by 1 June.

Pointing out that the letter in question increased market concerns about the negotiations, Moody’s main expectation was that the debt limit would be raised or suspended despite the tense political environment.

In the statement, it was emphasized that uncertainty increases credit risks, and the effects of 3 different scenarios on loans were summarized, in which the debt limit was increased or suspended, the debt limit was not removed, but the government did not default by giving priority to interest payments, and the government missed an interest payment.

Considering the current political dynamics, the decision to remove or suspend the debt limit is likely to be very close to the default of the debt, adding that this will intensify volatility in financial markets and increase funding costs and credit risk.

In the statement, it was stated that more lenders could be affected if the government had to accept large spending cuts in budget negotiations.

“The decision to prioritize interest payments may not affect the US country credit profile as it will continue to meet its debt obligations. However, a number of public finance issues that are dependent or exposed to federal funding will be affected,” the statement said. It can create credit pressure for the issuer.” it was said.

In the statement, it was emphasized that a missed interest payment and the downgrade of the country’s rating would affect many sectors, and it was emphasized that the ratings of the lenders, which are directly linked to the country rating, will most likely move in the same direction.

In Moody’s statement, it was noted that it is unlikely that the US will miss the interest payment.

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