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Moody’s Sees Low Chance of U.S. Default as Shutdown Persists

Moody’s Investors Service CEO Raymond McDaniel
Moody’s Investors Service Chief Executive Officer Raymond McDaniel said, “There’s, we still think, a good chance that there will be resolution around the debt ceiling.” Photographer: SeongJoon Cho/Bloomberg

Moody’s Investors Service said it sees a “very low” chance the U.S. will default on its debt payments as a stalemate between President Barack Obama and House Republicans showed little sign of thawing.

The impact of the partial government shutdown on the economy may not be particularly damaging in the short term, and the effect would be seen gradually over time if it was an extended one, Chief Executive Officer Ray McDaniel said in a Bloomberg Television interview in Bali on Oct. 5.

The impasse may threaten the U.S.’s ability to meet its payment obligations as Treasury Secretary Jacob J. Lew says Congress needs to pass a debt-ceiling increase by Oct. 17 or the U.S. will be “dangerously low” on cash and risk defaulting. U.S. Speaker John Boehner said the House can’t pass an increase to the debt ceiling without packaging it with other provisions.

“There’s, we still think, a good chance that there will be resolution around the debt ceiling,” McDaniel said. “Even if there’s not resolution on the debt ceiling, we think that the likelihood that Treasury security payments would be prioritized highly is strong.”

Obama, in an interview with the Associated Press, said he expects Congress will reach an agreement to raise the $16.7 trillion debt limit in time to avert a default. The U.S. will run out of borrowing authority on Oct. 17 and will have $30 billion in cash after that. The Treasury has warned a default could have catastrophic consequences that might last decades.

Top Ratings

“We are not going to pass a clean debt limit,” Boehner said in an interview on ABC’s “This Week” program on Oct. 6. “The votes are not in the House to pass a clean debt limit.”

The U.S. Treasury’s cash balance will be depleted no later than Oct. 31 and “possibly quite a bit sooner,” according to a note dated Oct. 5 from Goldman Sachs Group Inc. In the event of a missed principal or interest payment, there is a possibility that fund redemptions might broadly increase due to investor concern, prompting liquidation of Treasuries by money market mutual funds, it said.

The U.S. has the top ranking from Moody’s and Fitch Ratings, while Standard & Poor’s has it one step lower. Global bond yields showed investors ignored 56 percent of Moody’s and 50 percent of S&P’s rating and outlook changes last year, more often disagreeing when the companies said governments were becoming safer or more risky, data compiled by Bloomberg show.

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