By Sam Vereecke, Fixed Income CIO
& André Sousa, Fixed Income Fund Manager


Fitch downgraded the US rating from AAA to AA+ with a stable outlook. The main reasons for the downgrade were deteriorating governance, rising general government deficits and debt burdens, and unaddressed medium- and long-term fiscal challenges.

In its analysis, Fitch pointed to the steady deterioration in governance standards over the past 20 years, including on fiscal and debt issues, as exemplified by the June agreement to suspend the debt ceiling until January 2025. Another point was that the general government (GG) deficit is projected to rise from 3.7% of GDP in 2022 to 6.3% of GDP in 2023, reflecting cyclically weaker federal revenues, new spending initiatives, and a higher interest burden. The interest-to-revenue ratio is expected to reach 10% by 2025 (compared with 2.8% for the ‘AA’ median and 1% for the ‘AAA’ median), reflecting higher debt levels and persistently higher interest rates compared with pre-pandemic levels. Fitch and S&P (S&P Global Ratings downgraded the US in 2011) currently rate the US at Aa+, while Moody’s maintains the US at AAA.

The impact of this action on the bond market was very muted and unchanged. The yield on 10-year Treasuries was very little changed, as was the case for other AAA countries. In terms of dollar currency pairs, it was also very muted.

At DPAM, country analysis and research are key. Since 2007, DPAM maintains an in-house OECD country sustainability model to assess countries on environmental, social, and governance metrics. The DPAM OECD country model predates the creation of the SDGs and is deeply integrated into our portfolio management processes. Since its inception, the US has been in the bottom half of the OECD country sustainability ranking. Indeed, in the most recent review of the model, the US is in the third quartile, in particular due to its bad performance for “Transparency and Democratic Values”, the government component of the model. The table below shows the most recent DPAM OECD country sustainability ranking.

Figure 1: DPAM Country Sustainability Model 

Source: DPAM, April 2023

Despite these problems, in the short to medium term, we continue to believe in the reserve currency status of the USD and the unrivalled global liquidity and safety of US Treasuries. But both our country sustainability model and the Fitch analysis suggest this may not remain unchallenged if the US does not improve its governance model.

Want a more detailed overview of the position of the US in the DPAM OECD sustainability rankings?

Click here to visit our country sustainability model


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Any mention of past performances are no reliable indicators of potential future returns.

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