Amanda Albright and Scott Carpenter
4 min read
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(Bloomberg) — US states from Florida to North Carolina and Texas would likely hold onto top-notch credit scores from Moody’s Ratings, mostly because they’re in better fiscal shape than the federal government itself.
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More than a dozen states have pristine triple-A ratings from Moody’s, according to Bloomberg-compiled data, ranking them higher than the US government, which was stripped of its last top credit rating on Friday. That’s in part thanks to requirements for all but one, including the District of Columbia, to balance their operating budget in some form, according to a 2021 report by the National Association of State Budget Officers.
Analysts at JPMorgan Chase & Co. also suggested in a note on Friday that states should be relatively immune. They cited a Moody’s report from 2023, when the ratings firm changed its outlook on the US government to negative, that few public finance issuers were directly affected by that revision.
For the country, it’s a different story. Policymakers have consistently “failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said Friday when it downgraded the federal government to Aa1.
The move reflects deepening concern that ballooning debt and deficits will damage America’s standing as the preeminent destination for global capital and increase the government’s borrowing costs. That worry was swiftly reflected in market moves Friday as 10-year Treasury yields shot higher, and as an exchange-traded fund tracking the S&P 500 also fell.
Other parts of the financial markets, including $9 trillion of mortgage bonds effectively guaranteed by the US government, could see increased volatility Monday since they’re more exposed to interest-rate moves. And while few US companies hold AAA credit scores — just Johnson & Johnson and Microsoft Corp. have those from S&P Global Ratings, for example — borrowing costs for corporates may rise as the premiums they pay to borrow are based off government debt yields as a starting point.
If history is any guide though, US states should be fairly resilient. US states rated AAA by Fitch Ratings kept their top credit ratings even after it downgraded the US to AA+ in 2023. At the time, Florida Governor Ron DeSantis said his state was a “blueprint” for the federal government to follow.
