NEW YORK (Reuters) - Moody’s Investors Service said on Tuesday the U.S. government’s triple-A credit rating was safe but added that it could be at risk if Washington fails to reduce its public debt.
Financial markets have repeatedly been spooked this year by concern triple-A rated governments such as the United States and Britain could face credit ratings downgrades as they borrow heavily to spend their way out of recession.
“The U.S. government triple-A is safe,” Pierre Cailleteau, team managing director of Moody’s Sovereign Risk Group, said at a media briefing on sovereign credit ratings held in Tokyo.
Moody’s has a stable outlook on the U.S. rating, which indicates a change is not expected over the next 18 months.
Replying to a question about the sovereign rating of the United States, Cailleteau said the U.S. rating “remains a solid triple-A.”
But he added that there were possible risks that could lead to a downgrade.
“That will happen for two reasons. Either our assumptions in terms of debt reversibility prove to be wrong. That is, in fact the U.S. government is unable to bring public debt back to a downward trajectory,” he said.
The other reason for a downgrade would be if the United States were unable to raise a large amount of debt at a low cost, Cailleteau said.
“It could be put at risk if the U.S. dollar was severely challenged as the main international reserve currency,” he said.
But the possibility of the dollar being replaced as the main international reserve currency in the near future was a “pretty remote risk,” he added.
“The dollar could defend well, for instance, despite the inflationary threat, because many European nations have also injected tremendous amounts of liquidity into their own financial markets,” said Milton Ezrati, a partner and senior economist at Lord Abbett.
“What is more, Europe faces a deeper recession than the United States and will probably exit it later than this country.”
Debate has flared in the past few months about the dollar’s status as the world’s reserve currency at a time when the United States’ debt issuance is ballooning to pay for financial and economic rescue programs.
The bulk of the world’s foreign exchange reserves are held in dollars, and Russia, the holder of the world’s third-largest reserves after China and Japan, has repeatedly called for less global reliance on the dollar.
Moody’s Investors Service said in May that it was comfortable with its Aaa sovereign rating on the United States, but it was not guaranteed forever.
It also warned in May that if the United States failed to reduce current debt levels once economic growth returned, the top rating could come under pressure.
The mid-market quote on 5-year credit default swaps CDS on U.S. Treasuries was 46.5 basis points on Tuesday from 46.1 basis points late Monday, according to credit data firm CMA DataVision.
Reporting by Masayuki Kitano in Tokuo, Gertrude Chavez-Dreyfuss, and Richard Leong; Editing by Padraic Cassidy