Veteran US investor Jim Rogers expects the US to lose its AAA-credit rating. He concedes that it won’t happen “this month, or this quarter, but it is certainly going to happen”. His prediction follows credit ratings agency Standard & Poor’s recent decision to downgrade its outlook on US government debt.
S&P says there is a one-in-three chance that the US will lose its AAA rating yet Rogers feels that America’s levels of borrowing make it inevitable. “The US is the largest indebted nation in the history of the world and the debt is going higher and higher.” The 68-year old says that he would not buy 30-year Treasuries (US government IOUs) at “3%, 4%, 5% or 6% interest, as the government will never be able to pay off those debts”.
Yields on 30-year government debt are currently hovering around 4.4%. Rogers, and many other analysts, expect that yield to rise past the 5% mark as investors demand more reward for holding US debt. Other financial heavyweights, such as Bill Gross, co-founder of the world’s largest bond fund, PIMCO, have also warned investors to avoid US government debt.