There has been some commotion around Fitch’s recent downgrade of the US from AAA to AA+.
A lot of institutional investors have been questioning the potential impact of this downgrade on their strategic portfolios.
Overall, we believe investors need not be too worried about this event. US Treasuries will continue to remain a safe haven with top-notch liquidity.
The description of the rating has been downgraded from “Extremely High Quality” to “Very High Quality” which in terms of US Treasuries doesn’t hold a significant impact since many mandates specifically call for US Treasuries, rather than AAA rated sovereign bonds.
A one rating downgrade should not necessarily hamper credibility & attractiveness.
In 2011, S&P made this same rating downgrade on the US, where it remains to this day.
Evidence since then shows there really hasn’t been a material impact from the downgrade.