US Debt Vulnerable to Market Shifts, Ratings Agency Warns

Scope Ratings has maintained the United States' sovereign credit score at AA-, a rating three notches below the top tier and two steps below the AA+ grades assigned by rival agencies Moody's, Fitch, and S&P Global Ratings. The Europe-based credit ratings agency highlighted in a recent report that the U.S. debt outlook is becoming increasingly vulnerable to the bond market, a vulnerability underscored by a recent jump in Treasury yields. Scope acknowledged several strengths supporting the U.S. credit profile, including a robust economy, the U.S. dollar's status as the world's reserve currency, the strength of institutions like the Federal Reserve, and the depth and liquidity of its capital markets. Despite these advantages, Scope maintained a stable outlook for the U.S. credit rating, but it projects worsening deficits driven by persistent "structural expenditure pressures" and a limited political appetite for fiscal reform. The agency's analysis indicates that debt-servicing costs are set to drive further fiscal deterioration. Specifically, U.S. primary deficits, which exclude interest payments, are expected to remain stable at approximately 3.5% of GDP. This projection contrasts sharply with the current market reality, where the 10-year Treasury yield has surged to 5.27%, significantly exceeding long-term forecasts from the Congressional Budget Office (CBO). The CBO had projected 10-year Treasury yields to be around 4.3% between 2028 and 2031, and 4.4% from 2032 to 2036. The Committee for a Responsible Federal Budget has estimated that if Treasury yields remain approximately 1 percentage point higher than CBO projections, the national debt could increase by an additional $3.5 trillion over the next decade. Scope Ratings issued a warning that the escalating interest costs are constricting the government's capacity to respond effectively to future economic shocks. Furthermore, without substantial improvements in economic growth or significant fiscal adjustments, the general government debt burden is projected to approach 160% of GDP by 2036. Scope characterized this fiscal trajectory as unsustainable in the medium term, leaving the sovereign increasingly exposed to fluctuations in market sentiment and financing conditions. In response to these pressures, the U.S. Treasury has been observed to be rebalancing its debt portfolio, shifting towards shorter-term maturities and away from longer-term bonds that carry higher interest rates. The report also noted that upcoming elections could introduce additional risks related to the debt ceiling, further complicating the fiscal outlook.