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Research Announcement:

Moody's: FAQ on US Government’s debt limit and potential sovereign rating implications of a missed interest payment

16 November 2021


New York, November 16, 2021 --

  • Moody's stable outlook for the US Aaa rating reflects a view that the debt limit will ultimately be raised or suspended with all interest payments made on time and in full
  • A missed interest payment would be classified as an event of default and the US sovereign rating would likely be downgraded

The US federal government debt limit has once again been imposed and the US Treasury is relying on use of extraordinary measures to pay its bills, raising the risk of a potential missed interest payment if the debt limit is not ultimately raised or suspended, says Moody's Investors Service in a report published today.

"The US Congress agreed to increase the debt limit by $480 billion from the previous limit of about $28.4 trillion, providing lawmakers with more time to reach a longer-term agreement to either suspend or lift the debt limit," said William Foster, VP-Senior Credit Officer at Moody's Investors Service. "But political dynamics remain unchanged, and we expect renewed brinkmanship. If the US Treasury Department exhausts its use of extraordinary measures, the federal government would be forced to prioritize between debt-service and other payments, raising the possibility of a missed interest payment."

The stable outlook on the US' rating reflects Moody's view that the debt limit will ultimately be raised, Foster said. "Congress has a number of paths to increase the debt limit, and we expect it to continue its long track record of raising the debt limit in time to ensure timely payment."

In the event that the debt limit is not raised, Moody's believes that the Treasury would prioritize interest payments over other expenses to preserve the full faith and credit of the US government and avoid significant disruptions to global financial markets.

"If an interest payment was missed as a consequence of the debt limit, in line with our methodology and default definition, we would classify it as an event of default, which would have negative credit and rating implications for the US sovereign, likely resulting in a downgrade." Foster added.

However, Moody's would expect a default to be short-lived and cured with full recovery, with the sovereign rating most likely remaining close to Aaa. Moody's would also likely keep the rating under review until it became clear that a default cure would happen.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at [email protected] or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

William Foster
VP-Sr Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Calyn Lindquist, CFA
Associate Analyst
Ratings & Research Support
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Mauro Leos
Associate Managing Director
Sovereign Risk Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Alejandro Olivo
Managing Director
Project & Infrastructure Finance
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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