It is analogous to credit ratings for individuals.
Businesses are assigned by credit rating agencies such as Moody's, Standard & Poor's, and Fitch. The organizations use letter designations (such as AAA, B, CC) which represent the quality of a bond. Bond ratings below BBB/Baa are called junk bonds. Depending upon what ratings system a bond uses, the classifications and determining factors are slightly different. The credit rating is a financial indicator to potential investors of debt securities such as bonds.
On Wednesday Moody’s issued a press release announcing the United States triple A (AAA) rated bonds would be reduced unless the nation’s leaders did not take more stringent efforts to take action on the country’s budget deficit.
The Financial Times Newspaper (FT) reported that Steven Hess, senior credit officer at Moody’s said the deficits projected in the budget outlook presented by the Obama administration outlook this week did not stabilize debt levels in relation to gross domestic product. Mr. Hess added;
“Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating,”
This is due to “intensified” concern among investor that the trajectory of debt growth is “clearly, continuously” spiraling upward
Although Moody's Investor Service has issued this threat in past years, particularly during the Carter presidency when inflation was out of control, this is the first time the threat has been worded so strongly.