U.S. to Avert Default and Downgrade, BlackRock’s Rieder Says

The U.S. government won’t default on its debt nor suffer any credit-rating downgrade as occurred in 2011, according to Rick Rieder, chief investment officer of fundamental fixed income at BlackRock Inc.

“We are never going to go down the road, no matter what it takes, of default,” Rieder, who oversees $650 billion at the world’s biggest asset manager in New York, said on Bloomberg Television’s “Market Makers” with Stephanie Ruhle and Erik Schatzker. Among politicians in Washington “there is clearly a concern about what the implications would be. My sense is that politicians know you can’t get to that place.”

Congress is scheduled to meet today to attempt to end a stalemate that raises the risk of the first government shutdown in 17 years and threatens talks to increase the debt limit. Republican lawmakers are seeking to delay and limit President Barack Obama’s Affordable Care Act.

A brief government closure won’t lead to any significant change of the Treasury Department’s forecast for when the U.S. will breach the debt limit, a Treasury Department spokeswoman said yesterday in an e-mail. The Treasury has said measures to avoid breaching the threshold will be exhausted on Oct. 17.

There is little risk of a downgrade to the U.S. credit rating as happened in 2011, Rieder said.

In 2011, politicians used a debt-limit increase to force deeper spending cuts, a political showdown that caused the U.S. to come within days of default and led to a credit-rating downgrade by Standard & Poor’s. Republicans used the potential of default to force spending cuts. The legislation allowed a $2.1 trillion increase in the debt ceiling.

Market Implications

Fitch Ratings said in June that they expect to resolve their negative U.S. outlook by the end of the year. Moody’s Investors Service has affirmed its top rating for the U.S.

“There is no doubt it’s a political crisis,” said Rieder, manager of BlackRock’s flagship Strategic Income Opportunities Fund. “As a debt investors, you have to be comfortable with, and we are comfortable with, that you have a set of prioritization that will take place and at the end of the day that the government understands that if you breach that actual default -- and the implication it has around money-market funds, the implication it has around international investors, that this is so profound that they would never take us down that path.”

Before it's here, it's on the Bloomberg Terminal.