Reference no: EM132820577

Question - Summary: Key Points in the Article. - Credit rating agency Fitch Ratings announced that "any departure" from the US history of an orderly transfer of power stemming from the November 2020 presidential election could trigger a downgrade in the nation's current AAA credit rating. The nation's credit rating is important since a downgrade could create turbulence in the financial markets if investors lost some confidence in the US's ability to repay its massive debt. It could eventually increase the interest rate the US must pay on new bonds.

Fitch issued the warning due to the "ongoing deterioration" in the nation's budget and finances with no clear plan of how the US will improve its financial situation. Other experts expressed more confidence in the nation's ability to successfully navigate the election and the possible "post-election chaos" that may follow. Fitch noted that the "potential for a disputed election" and "increasing political polarization" were concerns that might affect how the next administration tackled fiscal issues.

1. How do investors use credit ratings?

2. How does a change in credit rating affect a bond's yield?

3. Why are credit ratings important to most issuers of debt?