By Wes Crill, PhD, and Jackie Pincus, CFA, Dimensional Fund Advisors
The big news recently was Moody’s downgrading the United States' sovereign debt rating from AAA to AA. They are the last of the “big 3” ratings agencies to lower the U.S. rating, following Fitch in 2023 and S&P more than a decade ago.
As with the Fitch example, credit default swap (CDS) spreads for the U.S. barely moved during the period surrounding the downgrade news. The CDS rate, which reflects the cost to insure against the U.S. defaulting on its sovereign debt, has been relatively stable since a rise in early April. That rise appears more correlated with the onset of tariff news that weighed on markets globally.
Moody’s cited a rise in U.S. government debt as the basis for the downgrade. The U.S. debt level is not exactly breaking news. Perhaps the CDS level remained about the same because the market didn’t learn anything new.
Source: Bloomberg.
Disclosures
All expressions of opinion are subject to change. This information is not meant to constitute investment advice, a recommendation of any securities product or investment strategy (including account type), or an offer of any services or products for sale, nor is it intended to provide a sufficient basis on which to make an investment decision. Investors should consult with a financial professional regarding their individual circumstances before making investment decisions. Diversification neither assures a profit nor guarantees against loss in a declining market.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
Investment products: • Not FDIC Insured • Not Bank Guaranteed • May Lose Value
Dimensional Fund Advisors does not have any bank affiliates