Besides the traditional three, there are seven major credit agencies that give their ratings and perspective for investor discretion and preference. Among the seven, Dagong based out of China is taken unprecedented majors to accurately rate the current debt market and coming crisis.
In 2011, S&P was the first agency to downgrade U.S debt from AAA to AA+ in history due to the current administrations decision to raise the debt level. This downgrade lead to further cuts from minor firms in the following years even Fitch downgraded and then upgrading the country's rating a year after. Aside from the "traditioners", Dagong was the only agency to downgrade and consistently downgrade U.S debt years to follow to a current rating of BBB+ (Negative Outlook). This current rating is a result of the U.S's continuation from one administration to the next to raise the "debt ceiling" increasing the overall deficit to a current $19.8 Trillion.
Rising Interest Rates
The current administrations number one objective is to raise interest rates to level the equity markets, but also taking massive tax cuts which will reduce it's ability to balance (not pay off) it's deficit. This could be seen as a paradox which such firms a Dagong have taken the initiative to foresee what these actions could bring in the near future. Aside from that, U.S Corporate bonds are bought mainly from pension funds, insurers, hedge funds, and sovereign wealth funds which in turned are backed by the Federal Reserve bond purchases and sold through U.S Treasuries. So what happens when U.S Treasuries become less attractive?
(This is a chart of 30-Year Bond rates which include inflation and interest rates. Take note, the "debt ceiling" has continuously been raised)
To Name a Few
This is just one of the many factors on why China is taken a prominent stance in it's region and abroad mainly because it's still the number holder of U.S debt. So when this debt becomes less attractive to buy, China will feel the effect more than any other nation. Current trade wars (tariffs) could be seen as one lender (China) responding to a borrowers actions to make the lender pay for is outstanding debt. Tariffs will only fuel more trade wars as China has no other option than to retaliate. As Dagong is set to compete with the "traditional 3", we will see a rise from other credit agencies that see the affect the current market will have on emerging markets and the economy as a whole leading into the future.
Until then, let's see how the dice roll.
