Understanding the National Debt Rating System

The national debt rating system is a crucial aspect of understanding how countries manage their finances. The system evaluates a country's creditworthiness, determining its ability to pay off debts.

There are three major rating agencies: Moody's, Standard & Poor's, and Fitch. These agencies assess a country's debt based on various factors, including its economic growth, budget deficit, and debt-to-GDP ratio.

A country's debt-to-GDP ratio is a key indicator of its creditworthiness. According to the article, the United States has a debt-to-GDP ratio of over 130%, which is a significant concern for investors.

Investors closely watch the national debt rating system because it affects the interest rates they pay on government bonds. A lower rating can lead to higher interest rates, increasing the cost of borrowing for governments.

For another approach, see: Interest Rates for Mortgage by Credit Rating

The United States has seen its fair share of changes in its national debt rating over the years. The country's last perfect credit rating was lost in 2023 when Moody's downgraded it to AA1.

Moody's first expressed concerns about the country's ability to pay its rising debt in 2023. This was followed by another downgrade in 2023 by Fitch Ratings and in 2011 by S&P.

The current House budget bill has raised red flags for Moody's, as it would add $4 trillion to the federal deficit over the next decade if passed. This is a significant increase, and Moody's is worried about the country's ability to generate enough revenue to outpace increased interest payments on debt.

Moody's also expects federal deficits to reach nearly 9% of the U.S. economy by 2035, up from 6.4% in 2024. This is a concerning trend, and it's clear that the country needs to take steps to address its debt.

Here are some key dates related to the country's national debt rating:

Moody's Ratings downgraded the Government of United States of America's long-term issuer and senior unsecured ratings to Aa1 from Aaa.

For another approach, see: Bcbs Ratings

The United States lost its perfect credit rating for the first time since 1917 when Moody's downgraded its rating to AA1.

Moody's cited concerns about the country's ability to pay its rising debt.

The firm expected federal deficits to reach nearly 9% of the U.S. economy by 2035, up from 6.4% in 2024.

Moody's expressed concern about the current House budget bill, which extends President Trump's 2017 tax cuts, and would add $4 trillion to the federal deficit over the next decade.

The United States still has exceptional credit strengths, including its large and dynamic economy and the dollar's status as a global reserve currency.

Moody's changed the outlook to stable from negative, indicating that the rating could be revised upwards if the government's finances improve.

A fresh viewpoint: Moody's Debt Rating Scale

The U.S. is facing a significant budget deficit, with a primary deficit expected to exceed $1 trillion in 2023 and likely even larger in 2024.

The budget deficit in 2022 reached 5.8 percent of GDP, and net interest payments on public debt are expected to hit $660 billion.

Rising interest costs on Treasury debt are a major contributor to the growing deficit, with interest costs already accounting for a significant portion of government spending.

The federal government's fiscal situation is becoming increasingly unsustainable, with the budget deficit projected to widen to nearly 9% of GDP by 2035.

Each American now bears a public debt of about $100,000, which is a significant burden, especially considering the country's high standard of living.

The large and growing national debt is a concern, but it's worth noting that the U.S. government is still viewed as a debtor of the highest quality by international agencies and financial markets.

However, the excellent reputation of the U.S. as a public debtor raises questions about the burden of the federal financial situation and the potential need for higher taxes or inflationary monetary policy in the future.

See what others are reading: Mortgage Rates Fall to 6.09 after Fed's Interest Rate Cut

The U.S. budget deficit is unusually large, reaching 5.8 percent of GDP in 2022 and rising rapidly.

The budget deficit in 2023 is expected to land around $1.7 trillion, with net interest payments on public debt expected to hit $660 billion.

Future growth may be less than buoyant, with predictions suggesting about 1 percent growth in 2024 and less than 2 percent in 2025.

Moody's expects federal deficits to reach nearly 9% of the U.S. economy by 2035, up from 6.4% in 2024.

The primary deficit is going to exceed $1 trillion in 2023, and is likely to be even larger in 2024.

For another approach, see: What Currency Does Iceland Use 2024

In 2018, the US government's fiscal strength was on a gradual decline due to widening deficits. The government's rating was affirmed as Aaa Stable, but the outlook was changed.

The Government of the United States of America issued a statement on December 12, 2018, warning that widening deficits would drive a gradual decline in fiscal strength over the medium term.

The U.S. debt to GDP ratio has been a topic of discussion in recent years. The major credit rating agencies have given the U.S. long-term public debt an AA+ grade with a stable outlook.

Standard & Poor's and Fitch give the U.S. long-term public debt an AA+ grade with a stable outlook. Moody's reports an AAA rating, the top mark. Fitch's rating was AAA until early last year, while Moody's maintained its grade in November but changed its outlook from stable to negative.

The U.S. federal debt to GDP ratio has been rising. In 2022, the budget deficit reached 5.8 percent of GDP. The budget deficit in 2023 will likely land around $1.7 trillion.

Net interest payments on public debt are expected to hit $660 billion. This means that the primary deficit is going to exceed $1 trillion. The cost of debt financing is rising, which is a concern for the federal government.

Take a look at this: Mortgage Rates Are Rising after the Federal Reserve Rate Cut

Moody's Ratings downgraded the US government's long-term issuer and senior unsecured ratings to Aa1 from Aaa in May 2025.

The rating change was a significant one, marking the first time the US lost its perfect credit rating since 1917.

Discover more: Us Debt Credit Rating

Moody's cited concerns about the country's ability to pay its rising debt as the reason for the downgrade.

The firm predicted that federal deficits would reach nearly 9% of the US economy by 2035, up from 6.4% in 2024.

Moody's also expressed concern about the current House budget bill, which would add $4 trillion to the federal deficit over the next decade if passed.

The US still has exceptional credit strengths, including its large and dynamic economy and the dollar's status as a global reserve currency.

Moody's also made a negative comment on the government's credit in November 2023.

A Moody's downgrade sent yields on Treasury bonds higher, and analysts said it could give investors a pause when markets re-open for regular trading on Monday.

The downgrade is a big deal, as Tom di Galoma, managing director of rates and trading at Mischler Financial, said it was very surprising and markets were not expecting this at all.

Treasurys are dealing with less foreign demand for them, and the growing size of the pile of debt that needs to be constantly refinanced is not going to change, according to Peter Boockvar, chief investment officer at Bleakley Financial Group.

This could trigger a bond market rout and hinder the administration's ability to pursue its agenda, as analysts are warning.

In early April, Treasury yields rose and the dollar weakened against its global counterparts in reaction to Trump imposing high tariffs on imported goods coming into the U.S., a sign that investors could be starting to move away from the U.S. as the safest place in the world to invest.

Fred Hickey, a long-time observer of tech stocks and editor of The High-Tech Strategist, expects the value of bonds and the dollar to fall and the price of gold to rise in response to the Moody's downgrade.