Five reasons the S&P downgrade isn’t so bad – and one word of caution

Here are five reasons why Standard & Poors downgrade of US debt from AAA to AA+ isn’t as bad as it seems, and a reminder not to take it too lightly.

2. There’s not much of a difference between AAA and AA+

Technically speaking, a AAA credit is considered ‘prime,’ while a AA+ is ‘high grade.’ The likelihood of a AAA credit paying back an investor is “extremely strong,” while the likelihood of a AA+ credit payback is “very strong.” Not much of a difference.

In fact, most institutions’ regulations treat AAA ratings the same as AA+ ratings, so the downgrade is unlikely to significantly affect global investment in Treasury bonds.

Furthermore, only the S&P downgraded US debt. Two other ratings agencies, Moody’s and Fitch, have not, and said they don’t plan to knock down the rating as long as the Treasury continues paying bondholders and Congress passes a long-term deal to extend the debt ceiling.

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