- Fitch Rating's US downgrade in August has dramatically shifted the debt market's composition.
- With the US now rated AA+, the amount of outstanding AAA sovereign debt shrank 85% to about $5 trillion.
Fitch Ratings' credit downgrade of US debt in August has shifted the bond market's composition, putting junk bonds in the lead.
By knocking the US rating from AAA to AA+, which is still investment grade, top-rated sovereign bonds no longer make up the largest nominal share of the market when measured by outstanding debt.
Without $33 trillion of US debt, AAA debt shrank 85% to about $5 trillion. That narrowed the share of AAA debt to just 6% from over 40%.
Meanwhile, speculative-grade sovereign debt, which is rated BB and below, was little changed at about $6.1 trillion, but it was still enough to exceed the sharply diminished pool of AAA debt.
Only nine AAA-rated sovereigns remain at Fitch, including Germany, Switzerland, Sweden, and Singapore.
S&P downgraded US debt to AA+ in 2011. The US is still rated AAA at Moody's, though it warned last month that a government shutdown would be "credit negative" for the US debt rating. A last-minute deal was reached to avoid an October 1 shutdown, but another one potentially looms next month.
The Moody's warning cited weak US governance. That echoed Fitch's downgrade, which came in response to the increasing brinkmanship in US politics, noting concerns that it was putting sound fiscal management at risk.
"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025," the agency said in August, referring to the spring's debt ceiling standoff.