Moody’s will downgrade US credit rating if Treasury misses interest payments

A top international credit agency said Tuesday it would consider the United States government in default of its debt obligations if it misses interest payments.

Moody’s Investor Service said it won’t downgrade the country’s “AAA” credit rating if the government misses a Sept. 30 deadline to raise the debt ceiling set by Treasury Secretary Steven Mnuchin, but would do so if the Treasury Department misses interest payments due Oct. 15 and 31.

“Moody’s view is that the debt ceiling will ultimately be raised and that the US will continue to meet its debt service obligations on time and in full,” the agency said in a statement on Tuesday, adding that it expects Treasury to prioritize interest payments.

{mosads}“In the event, however unlikely, that the US were to miss an interest payment, Moody’s would consider it a default,” the agency said.

Congress has less than month to raise the legal limit on how much debt the federal government can hold. The Treasury Department has used so-called “extraordinary measures” to prevent the U.S. from defaulting on its nearly $20 trillion debt. 

U.S. securities are widely considered a safe haven for investors, given the country’s economic power, resilience and relative political stability. A U.S. default on even a portion of that debt would raise questions about the safety of American bonds, upending the international financial system.

Moody’s said a U.S. default “would reflect the evidence of somewhat weaker US institutional capacity to repay debt obligations in a timely manner, and the probability, even if low, of similar events reoccurring in the future.”

Even so, Moody’s said the U.S. credit rating would remain close to “AAA,” reflecting Moody’s expectation that any default would be quickly resolved with little if any loss to investors.

Moody’s maintained the country’s “AAA” rating during the 2011 debt ceiling showdown, while Standard & Poor’s knocked the U.S. rating down to “AA+.”

The White House and congressional leaders have said that they’ll raise the debt ceiling but have failed to agree on a way to do it. President Trump suggested tying a debt ceiling hike to funding for Hurricane Harvey relief, but lawmakers shot the idea down.