Salient to Investors:

Standard & Poor’s said:

  • It increased the US’s AA+ credit rating outlook to stable from negative based on receding fiscal risks, and the US has a less than 1-in-3 likelihood of a downgrade in the near term due to tentative improvements like the deal to avoid the fiscal cliff.
  • US government debt as a percentage of GDP will be stable at 84 percent for the next few years.
  • It expects repeated divisive debates over raising the debt ceiling.
  • Better-than-forecast economic growth from the private sector and remittances from Fannie Mae and Freddie Mac have spurred the CBO to reduce its US deficit forecasts.
  • It does not see material risks to its favorable view of the flexibility and efficacy of US monetary policy.
  • US economic performance will match or exceed its peers’ in the coming years and the external position of the US on a flow basis will not deteriorate.

Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of 32 upgrades, downgrades and changes in credit outlook in 2012.

Phillip Swagel at the University of Maryland said the improving US economy is boosting government revenues, the sequester has trimmed spending, and uncertainties about growth in China and Europe make the US the preferred destination for global investors.

Dean Baker at the Center for Economic and Policy Research said S&P’s outlook change shows it is backtracking from its downgrade and this is the first step in getting back in line to AAA. Moody’s and Fitch assign the US their top AAA rankings with negative outlooks.

Guy LeBas at Janney Montgomery Scott said predictions of a sequester-driven doomsday have proved incorrect, and S&P is basically saying economic growth is more important than austerity in driving ratings changes LeBas said the rising tide of stronger economic growth is what’s really supporting tax boats.

Nikola Swann at S&P said we are moving gradually and hesitantly toward some fiscal consolidation, and that no country that has been dropped from AAA by S&P had regained the top rating in less than 9 years.

Stephen Myrow at ACG Analytics said S&P is basically saying the US won’t take the hit over the next few quarters despite the sequester, but the big issues like health-care costs and pension funding still remain for the long-term outlook.

Jay Bryson at Wells Fargo Securities said the improved outlook is unlikely to soften demands from Republicans for deeper budget cuts, and the problem with the US is not short-term but long-term budget dynamics.

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