Moody’s, the last of the major credit rating agencies to do so, has stripped the United States of its triple-A status. Old news, then? I wouldn’t go that far, given the timing of the decision. While not much may appear to be happening on the surface, policymakers, central banks, and politicians are working overtime behind the scenes.
There are now only nine countries in the world that still hold the highest possible credit rating—triple-A—from all three major agencies: Australia, Denmark, Germany, Luxembourg, the Netherlands, Norway, Singapore, Sweden, and Switzerland.
So, the United States has not been part of that exclusive club for some time now. In fact, it’s been almost fifteen years since S&P became the first to downgrade the US. From that perspective, the only “news” here is that none of the “Big Three” now considers the United States a triple-A country.
Buffers
It’s unlikely that this latest downgrade will cause US government bonds to lose their status as part of the “best” group of High-Quality Liquid Assets (HQLA). Alongside central bank reserves, US Treasuries are the most widely used form of HQLA, accepted as a buffer for banks without any “haircut.” To reclassify them for HQLA purposes—something that arguably should happen—would deliver a major blow to bank liquidity buffers. The BIS likely has little appetite for that.
Newsworthy
Still, I wouldn’t go so far as to call Moody’s downgrade a “non-event,” as many economists and market watchers have. The timing is intriguing. While the US government, with the help of the Department of Government Efficiency (Doge), is trying—albeit with limited success—to rein in massive budget deficits, and Trump is pressuring other countries to buy more American goods and services, Moody’s has now chosen this moment to downgrade the country’s creditworthiness.
Of course, Moody’s cites the usual suspects—high debt levels, structural deficits, and rising interest costs—but recent developments must also have played a role.
A gamble?
Trump’s volatile policies amount to a gamble. He wants to rebalance global trade in favor of the United States, weaken the dollar (temporarily), and at the same time maintain the dollar’s dominance.
Put simply, the rest of the world saves too much while the United States spends too much. That imbalance—characterized by high exports to and high imports from the US—leads to a constant outflow of dollars. But since the rest of the world saves excessively, a large portion of those dollars eventually return to the United States, particularly in the form of investments in US Treasuries, which are considered safe havens and therefore suitable as buffers.
Disrupted flow
If you disrupt this pattern of international trade—by forcing countries to buy more American products and export less themselves through tariffs that make foreign goods more expensive—you also interrupt the natural flow of dollars.
There’s simply less money outside the US that can flow back into US Treasuries. Add to that the fact that some countries already want to move away from the dollar, even as they continue to sign trade deals in the coming months, and the exceptional status of US Treasuries and the dollar comes under scrutiny. That’s not what Trump wants. He seeks a better balance without sacrificing the standing of US debt or the dollar.
Unwittingly, Trump may have set a number of gears in motion, making the original goal—creating more balanced global trade—subject to a range of side effects that also now need managing. This is why Moody’s decided, nearly fifteen years after S&P, to cut the US credit rating. They may have been looking for an excuse all along; the fact that the US still had a triple-A rating was already somewhat laughable. Trump gave them the stick to beat the dog.
What is risk-free?
Finally, regardless of how minor this downgrade may look on paper, you can bet it will spark a heated debate about what constitutes a “risk-free” asset or investment. In investing, everything is relative. One asset class is less risky than another, but that doesn’t mean it carries no risk—and those relationships are not fixed in stone. That’s exactly where we are now. The BIS, central banks, and policymakers must begin to factor in the risk of US Treasuries more actively.
That means re-evaluating which asset categories should form the foundation of a (bank) balance sheet in order to minimize risk and withstand stress scenarios. The advice is simple: diversify.
And if that fails, the United States could always try to reclaim its triple-A status by annexing Greenland (Denmark, triple-A) or welcoming Canada (also triple-A) as the 51st state.
Jeroen Blokland analyzes striking, current financial market and macroeconomic charts in his newsletter The Market Routine. He also manages the Blokland Smart Multi-Asset Fund, which invests in equities, gold, and bitcoin.