On Monday, S&P lowered the ratings of mortgage finance agencies Fannie Mae and Freddie Mac, whose credit grades are tied to the US government. The bonds they issue, known as agency debt, and the mortgage-backed securities they guarantee are held by investors worldwide.
Barclays said in a note on Sunday it follows a “2 out of 3” rule, which means that as long as two out of the three main rating agencies rate the US as a AAA issuer, the index rating for US Treasuries, agencies and agency mortgage-backed securities will remain AAA.
Moody’s Investors Service and Fitch Ratings affirmed their top credit ratings, Aaa and AAA respectively, on the US last week.
“With Moody’s and Fitch still rating the US as Aaa and AAA, respectively, the index rating for US Treasuries, agencies and agency MBS will still remain Aaa/AAA,” Barclays’ index group said in the note.
“If Moody’s or Fitch were to subsequently downgrade the US to below Aaa/AAA, only then would the index rating for US Treasuries, agencies and agency MBS move below Aaa/AAA,” it added.
