📝 Fitch Downgrade to Increase Pressure On Moody's to Follow: Rabobank

Perhaps Fitch had expected the debt limit negotiations to lead to a repeat of 2011 when S&P downgraded the US. In fact, after the chaotic House Speaker election in January, the fears of a debt limit standoff were high. However, McCarthy has turned out to be an effective leader, keeping the Freedom Caucus on board during his negotiations with President Biden. So Fitch went ahead with the downgrade anyway, but now the timing seems a bit random.

This leaves Moody’s as the only major ratings agency assigning the highest rating (Aaa) to US sovereign debt. This could increase the pressure on Moody’s to follow the other two, but it may prefer a good reason and wait for a specific incident, similar to S&P in 2011.

Meanwhile, the Fitch downgrade could have implications for index trackers and investment funds with a AAA only mandate, which could lead to forced sales, now that 2 out of the 3 main rating agencies no longer attach the highest rating to US sovereign debt. But for now, markets remain sanguine about the downgrade

- Rabobank