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Dow Jones NewsMay 19, 1:22 PM UTC
MW Is America the next Cyprus? Only one other Double-A rated country has ever defaulted
By Steve Goldstein
Cyprus is the only country with a double-A credit rating that has defaulted since 1983, according to Moody's
So what is Moody's really saying by removing the U.S. from the league of countries with a triple-A credit rating?
Have a look at the default rate of sovereign issuers. Going back to 1983, precisely zero countries with a triple-A rating defaulted within 10 years of getting that gold-standard approval.
But Cyprus, which possessed the Aa rating the U.S. now sports, defaulted in 2013. So now the data says that Aa-rated sovereign issuers have a 1-in-100 chance (or more precisely, 0.7% chance) of defaulting.
It's almost comical to compare Cyprus with the U.S., though the causes of the island nation's default - a banking crisis and capital outflows - are certainly not unimaginable from an American perspective.
If the U.S. were to default, it would almost assuredly be due to its unwillingness to pay rather than an inability. The U.S. government issues debt in dollars, which it can print in any amount. Cyprus, a member of the eurozone, didn't have that ability.
Cyprus's problems stemmed from its links to nearby Greece, which had its own crisis (and its own default, from a starting credit rating of a single A). Cyprus also had a troubled financial sector reliant on deposits from Russia.
According to Moody's, debtors recovered 53 cents on the dollar over the $1.3 billion Cyprus default.
Overall, some 1.8% of investment-grade sovereign issuers defaulted in 10 years, compared with the 23.9% that had speculative-grade ratings, the Moody's data show.
That's similar to the 2% of investment-grade corporate issuers and 30% of speculative-grade issuers that defaulted over the same timeframe.
-Steve Goldstein
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05-19-25 0922ET
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