U.S. Treasury bonds are widely viewed as the safest of safe-haven assets. But a leading credit rating agency doesn't think that debt issued by the U.S. government is as safe as it used to be.
Last Tuesday, Fitch Ratings downgraded the credit rating for the U.S. to AA+ (very high credit quality) from AAA (highest credit quality). The move rattled the stock market, sending major market indexes lower.
Warren Buffett, though, had a different take on Fitch's action than many investors did. Here's one thing Buffett is definitely not doing in response to the U.S. credit rating downgrade.
Image source: The Motley Fool.
No worries
Buffett isn't worrying about the U.S. credit rating downgrade in the least. When asked about it in an interview with CNBC on Thursday, he said, "There are some things people shouldn't worry about. This is one."
That doesn't mean, however, that Buffett doesn't agree with some of Fitch's reasoning behind its downgrade. The company cited the U.S. government's growing debt and "steady deterioration in standards of governance over the last 20 years" as key factors for lowering the U.S. credit rating to AA+. Buffett acknowledged that those are valid concerns.
However, the legendary investor doesn't think the stability of the U.S. or its financial system is in trouble. He told CNBC's Becky Quick, "The dollar is the reserve currency of the world, and everybody knows it."
Buffett is putting his money where his mouth is. In a CNBC interview earlier this year, he stated that Berkshire Hathaway buys U.S. Treasuries "every Monday." Buffett reiterated on Thursday that's exactly what the giant conglomerate will continue to do. He said, "[T]he only question for next Monday is whether we will buy $10 billion in three-month or six-month" U.S. Treasuries.
Echoing Buffett
Other prominent individuals in the financial community echoed Buffett's vocal support of the stability of U.S. credit.
Treasury Secretary Janet Yellen aggressively pushed back against Fitch's downgrade. In a speech, she called it "flawed" and "entirely unwarranted." Yellen argued that the U.S. "remains the world's largest, most dynamic, and most innovative economy -- with the strongest financial system in the world."
JPMorgan Chase CEO Jamie Dimon was equally adamant in his response. Dimon told CNBC on Wednesday that it is "ridiculous" that some countries that depend on the U.S. have higher credit ratings than the U.S. He added that Fitch's downgrade "really doesn't matter."
Mark Zandi, chief economist at Moody's Analytics, tweeted that Fitch's downgrade was "off base." He noted that U.S. Treasury bonds will remain the top preference for global investors.
Fitch's downgrade of U.S. Treasury debt to AA+ is off-base, IMHO. They rate the sovereign debt of a rather lengthy list of countries AAA. Really? Ask global investors whose bonds they would rather own if push comes to shove in the global economy-it's those of the U.S. Treasury.
-- Mark Zandi (@Markzandi) August 1, 2023
Still the safest safe haven
Even Fitch acknowledged that the U.S. has "exceptional strengths," including its large economy and the status of the dollar as the world's reserve currency. Buffett couldn't have said it better himself.
U.S. Treasury bonds -- especially those with short-term maturities -- remain a great alternative for investors who seek dependable yields. That's especially the case with the steep valuation of many stocks right now.
Buffett isn't worried about the U.S. credit rating downgrade. Retail investors shouldn't be, either. U.S. Treasury bonds are still arguably the safest of safe havens.
