Lower U.S. credit grade might hurt local marts
‘Any resulting volatility in the US financial markets could still have indirect impacts to the local financial markets.’
Pedestrians walk in front of the New York Stock Exchange. The United States lost its last triple-A credit rating from a major agency Friday as Moody’s announced a downgrade, citing rising levels of government debt. The downgrade to Aa1 from Aaa adds to the bad news for the US president, coming on the same day his flagship spending bill failed to pass a key vote in Congress.
Photograph courtesy of Spencer Platt/AGENCE FRANCE-PRESSE
Analysts said local financial markets might turn volatile due to Moody’s Investors Service’s recent downgrade in credit rating for United States-issued government bonds.
Moody’s lowered its credit rating on US government bonds by one notch to Aa1 from Aaa last Friday due to the foreign country’s rising debt and interest rates over a decade compared to similarly rated countries.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said interest rates of non-US global bonds might also increase.
“The US Treasury yield is the benchmark for borrowing costs for many governments and businesses globally so that other global bonds could move higher with the US Treasury yields,” he told Daily Tribune through Viber.
Jonathan Ravelas, financial market analyst and senior adviser at Reyes Tacandong & Co., said the likely higher interest rates could slow Filipino companies’ expansion projects or product developments.
“Local companies may face higher financing costs, negative market sentiment, and changes in trade dynamics with the US,” he said in a text message.
Economists said private firms might be challenged to raise capital for profit-generating activities as global creditors deem government bonds risk-free compared to corporate bonds.
Thus, Ricafort echoed that the weaker Moody’s rating on US government securities might translate into a gloomier economic outlook among global investors, including those who are considering the Philippines and participate in global stock trading.
“Any resulting volatility in the US financial markets could still have indirect impacts to the local financial markets,” Ricafort said.
On the positive side, he said the US dollar could weaken against other currencies like the Philippine peso as “the higher US debt could threaten the safe haven status of the US for investors.”
Economists said a weaker US dollar makes imported goods cheaper in Philippine markets, minimizes interest payments for US dollar-denominated loans, and sways foreign investments from the US.
The Moody’s downgrade on US government bonds was announced after US President Donald Trump declared high tariffs on exporting countries to the US on 2 April. The global credit watchdog said the US high tariffs and other protectionist policies like tax cuts on corporate income of American firms will not reduce US fiscal deficits.
Early warning
However, Ricafort said government and business leaders should not panic as other global credit raters had flagged a negative US economic outlook.
“The Moody’s rating was not a surprise. It just aligned with other credit rating agencies such as S&P and Fitch. Moody’s also gave a negative outlook more than a year before,” he said.
The peso appreciated against the US dollar by 3.31 percent in the past one year, hitting the best level at P55.375 per $1.
However, the local currency slightly weakened last 12 May to P55.904 per $1. This was after US Treasury Secretary Scott Bessent said the US agreed to slash tariffs on China from 145 percent to 30 percent.