S&P Keeps U.S. Rating at AA+ After Supercommittee Fails Reach Budget Deal

Standard & Poor’s said it would keep the U.S. government’s credit rating at AA+ after a congressional committee that was supposed to break partisan gridlock and cut the budget deficit didn’t reach an agreement.

S&P, which stripped the U.S. of its top AAA grade on Aug. 5, said it decided that the supercommittee’s failure didn’t merit another downgrade for the country because the failure will trigger $1.2 trillion in automatic spending cuts. While the firm expects the Budget Control Act to “remain in force,” easing those spending limits may cause “downward pressure on the ratings,” S&P analysts Nikola Swann and John Chambers said today in a statement.

S&P, Moody’s Investors Service and Fitch Ratings, the world’s three biggest providers of debt grades, have criticized the U.S. as Democrats and Republicans in Washington have made little progress in negotiations to reduce the budget deficit. That’s had little impact on the bond market with Treasuries returning 6.4 percent last quarter, the most since the three months ended December 2008.

“Investors look right through the agencies,” Greg Peters, global head of fixed-income research at Morgan Stanley, said today in an interview on Bloomberg Television’s “InBusiness with Margaret Brennan.” “They’re going to invest how they see fit.”

Both parties have blamed each other for the stalemate, with Democrats saying Republicans wouldn’t relent on taxes and Republicans accusing Democrats of rejecting an offer to raise revenue along with spending cuts.

Automatic Cuts

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline,” said panel co-chairmen Representative Jeb Hensarling of Texas and Senator Patty Murray of Washington.

The supercommittee’s collapse triggers across-the-board spending cuts to domestic and defense programs set to take effect starting in January 2013. Some lawmakers were already looking at ways to lessen the cuts.

Moody’s, which rates the U.S. Aaa and put the country on ‘‘negative outlook” in August, said the committee’s deadlock wouldn’t on its own cause the U.S. to lose its top rating because of the automatic cuts. Fitch, which also gives the U.S. its highest ranking, said on Aug. 16 that a failure by the committee would “likely result in negative rating action.

August Downgrade

After the government almost reached its borrowing limit before striking the deal that created the supercommittee, S&P lowered the U.S.’s credit rating to AA+ from AAA on Aug. 5. The ratings firm said the government is becoming “less stable, less effective and less predictable.”

The S&P 500 Index of U.S. stocks plunged 6.7 percent on the first trading day after the downgrade, while government bonds rallied as investors sought safety.

House Majority Leader John Boehner, an Ohio Republican, and House Minority Leader Nancy Pelosi, a California Democrat, have said they support the automatic cuts. “The markets should know that the deficit reduction will occur,” Pelosi said on Nov. 3. Boehner has said he “personally” feels a moral obligation to uphold the agreement.

“There is time for Congress to change the rules again,” Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ, said in an e-mail before the announcement. “The supercommittee deadline was never make or break anyway.”

To contact the reporters on this story: Zeke Faux in New York at zfaux@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Dave Liedtka at dliedtka@bloomberg.net

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