US Treasury yields edge lower after Fitch downgrade

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By Kevin Buckland

TOKYO (Reuters) – U.S. Treasury yields edged down in Tokyo on Wednesday after ratings agency Fitch lowered the country’s top credit rating.

The 10-year Treasury note declined about 3.2 basis points (bps) to 4.015% as of 0017 GMT, retracing part of its 9 bps rise from Tuesday.

Fitch overnight downgraded the U.S. government’s rating to AA+ from AAA, citing an expected fiscal deterioration over the next three years as well as a high and growing general government debt burden. It had placed the rating on watch for a possible cut in May.

“This will likely spark risk aversion flows as Asian markets re-open,” Tony Sycamore, a markets analyst at IG, wrote in a note to clients.

“Risk aversion means lower equities and safe haven buying of currencies such as the Japanese yen and Swiss franc against riskier currencies such as the AUD and NZD as well as buying Treasuries.”

Fitch’s announcement comes two months after Democratic President Joe Biden and the Republican-controlled House of Representatives reached a debt ceiling agreement following months of political brinkmanship, lifting the government’s $31.4 trillion debt ceiling.

Treasuries, whose yields fall when prices rise, were ironically also bought when Standard & Poor’s cut the U.S. top ‘AAA’ rating by one notch to ‘AA-plus’ in 2011, in the wake of a previous debt ceiling standoff.

(Reporting by Kevin Buckland; Editing by Jacqueline Wong)

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