Moody's affirms AAA rating, lowers outlook

@CNNMoney August 4, 2011: 4:45 PM ET

NEW YORK (CNNMoney) -- Credit rating agency Moody's said Tuesday the United States will keep its sterling AAA credit rating for the time being, but lowered its outlook on U.S. debt to "negative."

A "negative outlook" indicates the possibility that Moody's would downgrade the country's sovereign credit rating within a year or two.

The rating agency, which had placed U.S. debt rating on review for a possible downgrade last month, said the political deal to raise the debt ceiling has now "virtually eliminated the risk of such a default."

Even with the risk of default gone, Moody's said lawmakers need to take additional steps -- and keep to their promises.

The second round of spending cuts included in the debt ceiling deal need to be enacted, Moody's said, while expressing skepticism about the effectiveness of the so-called trigger mechanism.

"Should the new mechanism put in place by the Budget Control Act prove ineffective, this could affect the rating negatively," Moody's said in a statement.

And the United States should lower its debt-to-GDP ratio. Moody's said it expects to see debt stabilize at 73% of GDP by the middle of the decade and then decline.

And interest rates must remain under control. If borrowing costs for the U.S. government spike beyond expectations, that would "also be negative" for the rating.

The United States enjoys its AAA rating in part for having always stood behind its debt and paid its bills on time. As a result, U.S. Treasury bonds are considered the world's safe-haven investment.

Rating agencies -- Standard & Poor's, Moody's and Fitch -- analyze risk and give debt a "grade" that reflects the borrower's ability to pay the underlying loans.

Debt ceiling fight: What a downgrade would mean

The safest bets are stamped AAA. That's where U.S. debt has stood for years. Moody's first assigned the United States a AAA rating in 1917.

The move by Moody's comes after an ugly debate in Washington over whether to raise the country's $14.3 trillion debt ceiling.

Congress reached an agreement on Sunday, as the Treasury Department was days away from reaching its borrowing limit. President Obama signed the eleventh-hour bill Tuesday.

S&P has yet to weigh in on the debt ceiling deal. To top of page

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