Congress has now voted to extend the US debt ceiling and undertake major deficit reduction. However ugly those negotiations, America has never missed a debt service payment and there was little risk it would do so. That is one reason why yields on Treasury securities fell over recent weeks. Nevertheless, there is speculation the leading credit rating agencies may lower America’s rating below triple A.

Such a downgrade would be surprising because, with the new legislation, the relative debt outlook for the US has improved. The legislation, while far from perfect, ensures at least $2,200bn in deficit reduction over the next 10 years. That represents half of the total reduction needed to stabilise the debt to gross domestic product ratio. More reduction also is likely soon. Further, America is not the weakest of the 17 nations that currently enjoy such triple A ratings. Removing it from that list now would be unjustified.

Recently, several credit rating agencies formally announced they were evaluating a possible downgrade. Generally, this means a 50 per cent or higher probability of a lowered rating within 90 days. This was understandable, because they were concerned over the risks of default.