Municipal Bond Forum
Why are some cities and states rated higher than the Treasury?
Q
I have a question about the way rating agencies work. Certain municipalities across the nation and in California are rated “AAA,” while the U.S. Treasury is rated only “A.” This discordance is silly. What are your thoughts?
A
James A. Klotz responds:
On August 6, 2011, Standard & Poor’s downgraded the U.S. Treasury from “AAA” to “AA+,” where it remains today. Moody’s & Fitch have continued to maintain their “AAA” ratings on the U.S. Treasury, but have added a “negative outlook” designation. Negative Outlook means that over the longer term these ratings will be reviewed for possible adjustment.
States and municipalities are not permitted to run deficits, sovereign governments can.
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