2025-05-19 11:27

LONDON, May 19 (Reuters) - The group of governments whose bonds get the highest ranking just got smaller, after the United States lost its last triple-A credit rating from Moody's. The agency on Friday downgraded the U.S. rating by a notch to "Aa1" from "Aaa", citing rising debt and interest, and reflecting increased concern about rising debt in big economies. Sign up here. Here's a look at what's at stake. 1/ What is a triple-A rating and why does it matter? It all comes down to money. The credit rating is a guide to how risky buying debt is for potential investors. Independent agencies examine the metrics of a would-be bond seller to assess their creditworthiness and determine how likely that issuer might be to default on their debt. The downgrade highlights growing concern about the U.S. fiscal trajectory and has led to some upward pressure on long-dated bond yields, but analysts do not expect a sharp selloff in U.S. assets. The impact on how banks use government bonds, for instance as collateral, should not be significantly impacted, they add. However, ratings downgrades can be symbolic, as they were during the global financial crisis and euro zone debt crisis. The U.S. downgrade is potentially more significant because concern has already risen about U.S. trade policy and the dollar's reserve currency status. 2/ Which sovereigns now have a triple-A credit rating? The triple-A club has been shrinking for years. With the loss of the last remaining AAA-rating for the U.S., the group of countries that are the highest ranked by the three biggest agencies is 11, down from more than 15 before the 2007-8 financial crisis. Their economies account for a little over 10% of total world output. In Europe, Germany, Switzerland and the Netherlands are the largest economies with the highest rating. Elsewhere, Canada, Singapore and Australia are in the list. U.S. debt, meanwhile, ranks below that of the tiny European principality of Liechtenstein, which has a AAA credit score and GDP of just $7 billion, according to the World Bank. 3/ What is the U.S. rating now? The United States still carries the second-highest rating of AA. Moody's was the last of the big three agencies, after S&P Global and Fitch, to lower its U.S. rating, the only time it has done so since 1949. S&P was the first agency to cut, in 2011, for the first time since granting the U.S. its triple-A rating in 1941. Fitch followed in 2023. 4/ Why are big economies being downgraded? Rising government debt and concern that not enough is being done to tackle long-term fiscal problems have led to the downgrades. The U.S. government, for instance, has spent more money than it has collected every year since 2001, leading to annual budget deficits and a debt load of some $36 trillion. It spent $881 billion on interest payments in the most recent fiscal year, more than triple the amount it spent in 2017. Borrowing costs exceed defence spending. Other big economies also face rising debt loads from ageing populations, climate change and defence needs. Britain has a debt-to-GDP ratio near 100% and Japan's is above 250%. 5/ What is a ratings agency? A ratings agency assesses the creditworthiness of an issuer - that could be a sovereign or a corporate - and assigns a credit rating to the bonds they issue. Typically, ratings use a letter system run that from AAA for effectively risk-free issuers, to D, for an issuer actively in default. Ratings are ranked under two tiers: investment grade and high-yield, or junk. The higher the credit rating, the lower the premium that investors demand to hold those bonds, therefore, the lower the interest rate an issuer pays on that debt. The agencies assess factors including debt, economic growth projections and the strength of independent institutions. Traditionally, three main ratings agencies - Moodys, Standard & Poor's and Fitch have dominated. Others, including Morningstar DBRS and Scope, have gained more prominence in the last decade. https://www.reuters.com/business/finance/triple-a-sovereign-bond-club-has-shrunk-2025-05-19/

2025-05-19 11:19

LONDON, May 19 (Reuters) - What matters in U.S. and global markets today By Mike Dolan , opens new tab, Editor-At-Large, Financial Industry and Financial Markets Sign up here. U.S. Treasury Secretary Scott Bessent responded "who cares?" to news that the U.S. had lost its last top-notch credit rating. Bond markets might beg to differ. In today's deep dive, I discuss why investors should still be skeptical of sky-high U.S. stock market valuations. I get into all the market reactions below. Today's Market Minute * The European Union and Britain reached a tentative agreement on defence and security, fisheries and youth mobility ahead of a EU-UK summit on Monday, paving the way for British firms to participate in large EU defence contracts. * U.S. President Donald Trump's sweeping tax-cut bill, which had been stalled for days by Republican infighting over spending cuts, won approval from a key congressional committee on Sunday in a rare victoryfor Trump and House Speaker Mike Johnson. * The U.S. sovereign downgrade by Moody's has exacerbated investor worries about a looming debt time-bomb that could spur bond market vigilantes who want to see more fiscal restraint from Washington. * The possible lifting of U.S. sanctions on Iran's oil exports could deal a fatal blow to independent Chinese refineries that have thrived by processing Tehran’s discounted crude, while also putting further downward pressure on oil prices. Read the latest analysis from Reuters columnist Ron Bousso. * Syria is seeking to reintegrate itself into the global economy after spending decades as a pariah under the rule of Bashar al-Assad, raising the question of whether the new government in Damascus will be expected to repay the massive debts the prior regime incurred while fighting. Check out the column by sovereign debt experts Lee Buchheit and Mitu Gulati. U.S. credit grating The 30-year U.S. Treasury yield topped 5% to hit its highest since October 2023 after Moody's on Friday stripped the United States of its AAA sovereign credit rating. It was the last of the three main credit ratings agencies to do so. Ten-year yields also jumped about five basis points from Friday's close, the dollar (.DXY) , opens new tab slipped and Wall Street stock futures fell more than 1%. Bessent used television interviews on Sunday to dismiss the downgrade, while also warning trade partners that they would get maximum tariffs if they did not offer deals in "good faith". This reignited trade tensions that had dissipated somewhat last week. Trump added to corporate America's anxieties by insisting that Walmart (WMT.N) , opens new tab "eat the tariffs" instead of blaming price increases on import duties imposed by his administration. Bessent's dismissal of the downgrade may resonate with many, as the Moody's decision lagged behind the other agencies' actions and was predictable given warnings over the past year. Still, the downgrade comes at a sensitive time for the bond market, as the budget deficit looks set to continue ballooning. Trump's sweeping tax cut bill, which had been stalled for days by Republican infighting over spending cuts, won approval from a House Budget Committee on Sunday. At an unusual Sunday-night session, four hardline Republican conservatives who had blocked the legislation allowed the bill to move forward as they pressed for deeper spending cuts in closed-door talks with Republican leaders and White House officials. The bill, which non-partisan analysts say would add $3-5 trillion to the nation's $36.2 trillion in debt over the next decade, is expected to go to a full house vote by the end of the month. Moody's cited the rising debt, which it said was on track to reach 134% of GDP by 2035, for its decision to downgrade the U.S. credit rating. Some banks expect the annual deficit to rise above 7% of GDP next year. Nervousness has also risen over the last month about the stability of foreign holdings of Treasuries. March data on overseas ownership of Treasuries, also released late Friday, showed rising demand before the April 2 tariff sweep. But Chinese holdings fell by almost $20 billion during the month. And holders based in Britain, often seen as a proxy for hedge funds and offshore holdings, overtook China as the second largest grouping. Bessent now heads to meet G7 finance ministers and central bankers in Canada this week for more talks. U.S. Vice President JD Vance and European Commission President Ursula von der Leyen met on Sunday to discuss the bilateral negotiation process. Elsewhere, China's latest economic health check for April showed some resilience in industry, but some worrying misses in retail sales and the ailing property sector. Chinese stocks ended in the red on Monday. In Europe, the focus was on Britain agreeing to the most significant reset of ties with the European Union since Brexit. Britain removed some trade barriers and will collaborate on defence to help expand its economy and boost security on the continent. Make sure to check out today's column, where I explain why the belief in perpetual U.S. market dominance seems increasingly improbable. Chart of the day This may not be a chart, strictly speaking, but this list speaks for itself. Moody's is the last of the three main credit ratings firms to strip the United States of its triple-A rating. Fewer and fewer countries have top-notch ratings from at least two of the agencies. The Top 10 in the list includes five European Union sovereigns, with a total of seven from the wider European continent. Canada, Australia and Singapore make up the rest. Today's events to watch * U.S. April leading economic indicator (8:30 AM EDT) * Federal Reserve Vice Chair Philip Jefferson, New York Fed President John Williams, Dallas Fed chief Lorie Logan, Atlanta Fed boss Raphael Bostic and Minneapolis Fed chief Neel Kashkari all speak. * UK-European Union summit on post-Brexit reset agreement Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles , opens new tab, is committed to integrity, independence, and freedom from bias. https://www.reuters.com/markets/us/americas-us-credit-grating-2025-05-19/

2025-05-19 11:02

(Reuters) May 19 - The pound rose against a weaker dollar and fell against the euro on Monday after Britain agreed a major trade and defence reset with the European Union, though FX market attention stayed on U.S. developments. Britain agreed the most significant reset of ties with the European Union since Brexit on Monday, removing some trade barriers and collaborating on defence but also touching on sensitive issues including fishing rights. Sign up here. The pound was last up 0.91% versus the dollar at $1.34015, having briefly touched its highest level since April 30. Meanwhile it fell 0.31% against the euro to 0.8421. Neil Wilson, UK investor strategist at Saxo Markets, said the market seems to like the deal overall, but focus remains on the U.S. dollar. "I feel like this is a little ripple to the main tidal wave of U.S. debt selloff and dollar-led moves - gilts are getting hammered and no amount of fish is going to fix that," he said. The dollar fell against a range of currencies including the euro and the yen on Monday after a surprise downgrade of the U.S. government's credit rating while trade tensions also continue to weigh on the greenback. Rising U.S. 10-year treasury yields - last up 10.5 bps to 4.54% on Monday - could have a potential knock-on effect for sterling via the gilt market, said Saxo's Wilson. After upbeat GDP data last week boosted the pound, traders are now looking ahead to UK CPI due on Wednesday for a steer on the potential trajectory of the Bank of England (BoE). Traders are currently betting on a 25bps cut at the BoE's next meeting in June. https://www.reuters.com/world/uk/sterling-rises-against-weaker-dollar-uk-eu-agree-trade-reset-2025-05-19/

2025-05-19 10:37

JOHANNESBURG, May 19 (Reuters) - South Africa's National Treasury will likely announce wider budget deficit forecasts on Wednesday as it struggles to find alternative sources of revenue in the absence of stronger economic growth, a Reuters poll of economists found. The Treasury will project a budget gap equivalent to 4.70% deficit of gross domestic product for the 2025/26 financial year, according to a May 8-19 poll of 10 economists. That is wider than the March 4.60% government projection and the 4.55% predicted in a February Reuters poll. Sign up here. The economists' forecasts ranged from -5.10% to -4.50%. Finance Minister Enoch Godongwana is due to return to parliament on May 21 for a third try at passing South Africa's budget after disputes with coalition partners over plans to increase tax revenue, leaving him with a 75 billion rand ($4.1 billion) budget hole. The poll predicted a narrower deficit in the following fiscal year, 4.40%, still well above the Treasury's last projection of 3.80%. More than a third of economists who answered an additional question said accelerating economic growth reforms was the most probable option the National Treasury would rely on to increase tax revenue. Weaker growth, however, was the biggest risk they saw to the government hitting its medium-term consolidation targets. "Public finances are weak with fiscal consolidation slow due to increased spending pressures, while tax revenue growth is constrained by a weak economy," wrote Tatonga Rusike, Sub-Saharan Africa economist at Bank of America Securities. Growth forecasts for 2025 were cut to 1.5% in a separate Reuters poll late last month. Higher borrowing costs have exacerbated government efforts to lower payments on public debt. The survey also showed South Africa's gross debt-to-GDP ratio will be 77.0% in the new financial year compared with 76% in the February poll. https://www.reuters.com/world/africa/third-try-south-africa-budget-may-point-revenue-shortfall-470-gdp-say-economists-2025-05-19/

2025-05-19 10:36

Ruling centre-right party wins most seats, short of majority Portugal holds third election in three years Anti-immigration Chega party could become main opposition LISBON, May 19 (Reuters) - Portugal's far-right Chega won a record vote share in Sunday's snap election and was vying to become the main opposition party as the ruling centre-right Democratic Alliance (AD) again fell short of a majority needed to end a long period of instability. Prime Minister Luis Montenegro hailed the result as a vote of confidence in his AD which won most seats in parliament. Sign up here. However, with votes from abroad still to be counted, Chega could supplant the centre-left Socialists as leader of the opposition, ending five decades of dominance by the two major parties. "We've done what no other party has ever achieved in Portugal. We can safely declare in front of all the country today that bipartisanship in Portugal is over," Chega leader Andre Ventura told jubilant supporters in Lisbon. "Nothing will be as it was," he said, highlighting the fact that the continued rise of Chega, which he founded just six years ago, proved most opinion polls wrong. Chega gained eight seats for a total of 58 in the 230-seat parliament, winning a record 1.34 million votes, or 22.6%. In the previous vote, it won two out of four seats reserved for overseas voters. Montenegro, whose AD won 89 seats - up nine - and 32.7% of the vote, has refused to make deals with Chega and said he would form a new minority government. Chega, which has allied with Europe's hard-right, anti-immigration parties, such as Marine le Pen's National Rally in France and Germany's AfD, has proposed tougher sentences for criminals, including chemical castration for repeat rapists. It has also called for an end to "open doors" immigration and accused mainstream parties of perpetuating corruption. Continued political instability could delay structural reforms and major projects, including lithium mining in the north, and potentially compromise the efficient deployment of EU funds and long-delayed privatisation of TAP airline. The election, the third in as many years, was called one year into the AD minority government's term after Montenegro failed to win a vote of confidence in March when the opposition questioned his integrity over dealings of his family's consultancy firm. He has denied any wrongdoing. "The Portuguese don't want any more snap elections, they want a four-year legislature," Montenegro said as his supporters chanted "Let Luis work," his campaign slogan. SOCIALISTS PUNISHED Voters appeared to punish the Socialists for their role in bringing down Montenegro's government. The party fell to 58 seats from 78, prompting leader Pedro Nuno Santos to say he would step down. Chega benefited from frustrations with the political system, said Jose Tomaz Castello Branco, a professor of politic science at Lisbon's Catholic University. "We saw kind of an earthquake because nobody expected such a rise from Chega," he said. "This is really uncharted territory. We never had a three-party system so we don't know what the future will bring." Santiago Abascal, leader of Spain's far-right Vox party, said Chega's Ventura had "broken Portugal's bipartisan swindle." In Lisbon, some residents worried what Chega's surge could mean for democracy, comparing the party to U.S. President Donald Trump's government. Antonio Albuquerque, 65, said it was the first time in his life he had not voted because he did not trust any parties. "Look across the ocean and see if there is a risk or not. What is Trump doing? I think we are in danger, right?" he said. European Council President Antonio Costa, Portugal's Socialist prime minister from 2015-2024, congratulated Montenegro and said he looked forward to working with his government but suggested that it would not be easy to govern. "These may be difficult times," Costa wrote on X. "But I know that, as in the past, the European Union will fulfil its objectives and emerge stronger." https://www.reuters.com/world/europe/portugals-ruling-centre-right-alliance-wins-election-far-right-makes-record-2025-05-19/

2025-05-19 10:15

LONDON, May 19 (Reuters) - Britain's domestic energy price cap is expected to fall by about 7% in July due to lower wholesale energy prices, analysts at Cornwall Insight said on Monday. A fall would be welcome news for the government, under pressure to meet a pledge to curb household energy costs, although the analysts were last month predicting a greater drop, of 9%. Sign up here. Craig Lowrey, their principal consultant, said this reflected "a combination of increases in the energy wholesale markets and updated assessments of several cost inputs including policy costs and network costs". Since the end of April, benchmark British wholesale gas prices have risen around 10%. But they still remain significantly lower than their peak in February as warmer weather has curbed demand, the EU parliament has backed weaker gas storage rules, and fears have grown of a global trade war. "The fall is also a clear reminder of just how volatile the energy market remains. If prices can go down, they can bounce back up, especially with the unsettled global economic and political landscape we are experiencing," Lowrey said Energy regulator Ofgem sets a cap on household energy bills each quarter using a formula that reflects wholesale energy prices and also takes into account suppliers' network costs and environmental and social levies. Cornwall Insight forecasts Ofgem’s price cap will fall in July to 1,720 pounds a year for average use, from 1,849 pounds in April. Ofgem is expected to publish its price level for July-September on May 23. https://www.reuters.com/sustainability/boards-policy-regulation/britains-energy-price-cap-fall-7-july-cornwall-insight-says-2025-05-19/