The last time a credit-rating agency downgraded U.S. debt was in 2011, when Standard & Poor’s downgraded the government’s rating from AAA to AA+. Then, as in the spring of 2023, Congress and the White House reached an agreement to raise the debt ceiling only days before the Treasury would have exhausted its cash reserves.
“There was turmoil in both the equity and fixed income markets back then, but that was more due to the debt ceiling impasse rather than from the credit downgrade itself,” said Aliaga-Díaz. “The market impact of Fitch’s rating action may not be clear immediately, but it’s worth noting that the credit downgrade in 2011 didn’t have long-lasting consequences. Moreover, after the 2011 downgrade, investors flocked to U.S. Treasuries, pushing yields down slightly, not up. Global investors, institutions, and foreign governments all rely on Treasuries. As of now, there are few alternatives to Treasuries as a way to invest in the world’s reserve currency, which is the U.S. dollar.”
That said, yields could stay higher for a longer period.