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Moody’s Corporation (NYSE: MCO) has downgraded U.S. debt from Aaa to Aa1, and investors aren’t happy about that. The Vanguard S&P 500 ETF (NYSEMKT: VOO) opened 0.9% lower on Monday, the first trading day after the credit downgrade, which was announced after close of trading Friday.
Moody’s cited risks including a growing budget deficit and rising borrowing costs in making its change. Worse, this may be a self-fulfilling prophecy. Debt markets responded to the downgrade by making U.S. debt even more expensive. 30-year U.S. treasury yields climbed past 5% and 10-year bonds rose past 4.5%.
The news isn’t entirely horrible. At Aa1, America’s debt remains “investment grade” and Moody’s fuller explanation of the new credit rating says that U.S. obligations “are judged to be of high quality and are subject to very low credit risk.” It’s still a painful cut, though, and Moody’s no longer considers U.S. debt to be “of the highest quality, with minimal risk.”
S&P Global (NYSE: SPGI) and Fitch, the world’s other two big credit raters, had previously made similar moves to downgrade U.S. debt.
Earnings
Earnings season is slowing down, with only a few companies reporting this morning. ZIM Integrated Shipping Services Ltd. (NYSE: ZIM) reported $2.45 per share this morning, beating earnings. Global Ship Lease (NYSE: GSL) likewise beat earnings with profits of $2.65 per share.
Analyst Calls
UBS upgraded both Delta Air Lines (NYSE: DAL) and United Airlines (Nasdaq: UAL) to buy. The Swiss banker called United “one of the best positioned airlines to take advantage [of] a recovery in corporate travel and continued resilience in Premium and International.” Delta is also “well placed to capitalize on any improvement.”
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