U.S. Downgrade a Reminder That Rising Deficits Can Have a Cost

For the second time in 12 years, one of the three main credit rating agencies has stripped the U.S. government – the world’s largest issuer of sovereign debt – of its top-tier triple-A credit rating. While this week’s move by Fitch Ratings is symbolically significant, and carries practical implications for markets as well, we would not expect it to trigger large selling of U.S. Treasuries nor a near-term shift in investor behavior.