Fitch Says U.S. Debt-Suspension Removes Risk of Downgrade

Fitch Ratings said the temporary suspension of the U.S. debt limit removes the near-term risk to the nation’s AAA credit rating.

Agreement on a credible medium-term deficit reduction plan consistent with sustaining the economic recovery would likely result in the affirmation of the rating and revision of the outlook to stable from negative, Fitch said in a statement. In the absence of such a plan, the negative outlook would likely be resolved with a downgrade later in 2013.

Fitch had previously said that failure to increase the debt ceiling in a timely manner would prompt a review of the U.S. sovereign rating. Congress broke an impasse on Jan. 2 on how to avert the so-called fiscal cliff by passing legislation skirting income-tax increases for more than 99 percent of households. The U.S. House of Representatives voted on Jan. 23 to temporarily suspend the nation’s borrowing limit.

“This is definitely helpful for market sentiment,” Sireen Harajli, a foreign-exchange strategist in New York at Credit Agricole SA, said in a telephone interview. “It seems that markets are looking for a decent gain.”

Benchmark 10-year yields were little changed at 1.95 percent as of 7:23 6:56 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in November 2022 fell 2/32, or 63 cents per $1,000 face amount, to 97 1/32.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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