# US credit rating downgrade in 2026? In 2026 Updated: April 29, 2026 Category: Economics Tags: Growth HTML: /markets/economics/growth/us-credit-rating-downgrade-in-2026/ ## Short Answer **Key takeaway.** Both the **model** and the **market** expect a US credit rating downgrade in 2026, with no compelling evidence of mispricing. ## Key Claims (January 2026) **- - Rating agencies will assess Q4 2025 TCJA legislative outcomes.** - No future data on foreign US Treasury holdings is available. - CBO projects federal debt-to-GDP will exceed **120%** by mid-2026. - No evidence suggests state CDS spread widening or fiscal contagion. - No major agency placed US credit ratings on negative watch. ### Why This Matters (GEO) - AI agents extract claims, not arguments. - Improves citation probability in summaries and answer cards. - Enables fact stitching across multiple sources. ## Executive Verdict **Key takeaway.** **Model** and **market** align at 40c, reflecting projected mid-2026 federal debt-to-GDP exceeding **120%**. ### Who Wins and Why | Outcome | Market | Model | Why | | --- | --- | --- | --- | | Rating reduced | 40.0% | 40.0% | Rising national debt and sustained budget deficits could prompt a rating downgrade. | ## Model vs Market - Model Probability: 40.0% (Yes) - Market Probability: 40.0% (Yes) - Yes refers to: Rating reduced - Edge: +0.0pp - Expected Return: +0.0% - R-Score: 0.00 - Total Volume: $46,129.04 - 24h Volume: $390.59 - Open Interest: $27,305.58 - Expiration: January 1, 2027 ## Market Behavior & Price Dynamics This prediction market has exhibited a clear upward trend since its inception, with the probability of a US credit rating downgrade in 2026 rising from a starting point of 32.0% to its current level of 40.0%. The trading range has been established between a low of 28.0% and a high of 42.0%. The most significant price action occurred around April 15, 2026, when the market experienced a sharp 8.0 percentage point spike, jumping from 32.0% to 40.0% in the following weeks. The specific catalyst for this sudden increase in perceived probability is not apparent from the provided context. The market has seen a total volume of 6,327 contracts traded, indicating a moderate level of engagement from participants. However, the sample data does not show specific volume during the recent price surge, making it difficult to gauge the conviction behind that particular move. From a technical perspective, the market is currently trading near its historical resistance level of 42.0%. The previous floor for the market appears to be around the 28.0% to 32.0% range, which could now be considered a support zone. Overall, the price action suggests that market sentiment has grown more pessimistic about the US credit outlook for 2026. The sustained upward trend and the recent surge to the upper end of the trading range imply that traders increasingly believe a downgrade is a likely event. The market's reaction as it approaches the 42.0% all-time high will be a key indicator of whether this sentiment will continue to strengthen or if it will face resistance. ## Significant Price Movements #### 📈 April 15, 2026: 8.0pp spike Price increased from 32.0% to 40.0% **Outcome:** Rating reduced **What happened:** No supporting research available for this anomaly. ## Contract Snapshot This market resolves to "Yes" if the U.S. credit rating is downgraded by any of Standard & Poor's, Moody's, or Fitch by December 31, 2026. Otherwise, it resolves to "No." If a downgrade occurs, the market closes at 10 AM ET the following day; if not, it closes at 11:59 PM EST on December 31, 2026. ## Market Discussion Limited public discussion available for this market. ## Market Data | Contract | Yes Bid | Yes Ask | Last Price | Volume | Open Interest | | --- | --- | --- | --- | --- | --- | | Rating reduced | 39% | 40% | 40% | $46,129.04 | $27,305.58 | ## How Will Moody's and S&P Assess Q4 2025 TCJA Legislative Outcome? Moody's Evaluation Focus | Governance effectiveness, institutional strength, policy predictability [1, p [[^]](https://ratings.moodys.com/api/rmc-documents/395819). 10] [[^]](https://www.norges-bank.no/contentassets/65ed68bc853049f7bb671568e77a1489/moodys-2024.pdf?v=11122024123453) | S&P Evaluation Focus | Effectiveness of policymaking, political institutions, stability [3, p [[^]](https://ratings.moodys.com/api/rmc-documents/395819). 7] [[^]](https://www.norges-bank.no/contentassets/65ed68bc853049f7bb671568e77a1489/moodys-2024.pdf?v=11122024123453) | Key Shared Concerns | Political polarization, fiscal trajectory, consensus-building [2, p. 3], [[^]](https://www.spglobal.com/ratings/en/research/articles/250414-u-s-fiscal-trajectory-hinges-on-budget-and-policy-outcomes-13474006) | **Both Moody's and S&P will assess the Q4 2025 legislative outcome** Both Moody's and S&P will assess the Q4 2025 legislative outcome. They will evaluate the Tax Cuts and Jobs Act (TCJA) provisions through their established frameworks for "governance effectiveness" and "institutional strength." Their assessments will focus on policy predictability, fiscal sustainability, and the ability of political institutions to reach consensus [1, p. 10], [3, p. 7]. Both agencies are concerned about the legislative outcome's impact on the U.S. fiscal trajectory and any evidence of political polarization affecting policy decisions [2, p. 3], [[^]](https://www.spglobal.com/ratings/en/research/articles/250414-u-s-fiscal-trajectory-hinges-on-budget-and-policy-outcomes-13474006). Moody's evaluates governance effectiveness through policy predictability and political cohesion. It assesses "governance effectiveness" as a component of "institutional strength," examining factors such as policy predictability, the capacity to formulate and implement effective policies, and political cohesion [1, p. 10]. Moody's has previously noted political polarization and the resulting difficulty in achieving bipartisan consensus on fiscal matters as a credit challenge for the U.S. [2, p. 3]. Following the Q4 2025 legislative outcome, Moody's would likely use language emphasizing the "effectiveness of fiscal policy decision-making" and "policy predictability." Should the outcome lead to further deterioration of the fiscal outlook or continued political gridlock, Moody's could reference the U.S. "fiscal strength on course for continued decline" [[^]](https://www.reuters.com/markets/us/moodys-says-us-fiscal-strength-course-continued-decline-2025-03-25/) and challenges in the "ability to address fiscal challenges" [1, p. 10], reflecting negatively on governance effectiveness. S&P Global Ratings focuses on policymaking effectiveness and political stability. It considers the "effectiveness of policymaking, political institutions, and the degree of political stability" a core component of its sovereign ratings, which includes evaluating "policy predictability, transparency, and accountability" [3, p. 7]. S&P has expressed concerns about the U.S.'s "high and rising fiscal deficits" and the impact of political dynamics on policy decisions, particularly regarding consensus-building to manage the debt burden [[^]](https://www.spglobal.com/ratings/en/research/articles/250414-u-s-fiscal-trajectory-hinges-on-budget-and-policy-outcomes-13474006). After the Q4 2025 legislative resolution, S&P's commentary would likely focus on the outcome's effect on the U.S.'s "fiscal trajectory" and whether it demonstrates the capacity for "timely and effective policy responses" to address long-term fiscal imbalances [[^]](https://www.spglobal.com/ratings/en/research/articles/250414-u-s-fiscal-trajectory-hinges-on-budget-and-policy-outcomes-13474006). An inability to reach a sustainable resolution, or one that exacerbates fiscal pressures, would likely be cited as an example of political institutions struggling to achieve "consensus" on critical policy decisions, thereby impacting the assessment of policymaking effectiveness and political stability [[^]](https://www.spglobal.com/ratings/en/research/articles/250414-u-s-fiscal-trajectory-hinges-on-budget-and-policy-outcomes-13474006). ## What Are Foreign Official Holdings of US Treasury Securities Now? Latest Holdings (Feb 2024) | $4,082.9 billion [[^]](https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html) | YoY Change (Feb 2023-2024) | +4.90% [[^]](https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html) | Holdings Pre-Downgrade (Jul 2023) | $4,013.9 billion [[^]](https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html) | **Future US Treasury holdings data is not yet available** Future US Treasury holdings data is not yet available. The U.S. Treasury's Treasury International Capital (TIC) data provides historical records of international capital flows and holdings, rather than future projections. Consequently, specific year-over-year rates of change for US Treasury securities held by foreign official institutions for late 2025 or early 2026 are not yet accessible [[^]](https://home.treasury.gov/data/treasury-international-capital-tic-system). As of February 2024, the latest available data, foreign official institutions held **$4,082.9** billion in US Treasury securities [[^]](https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html). Foreign official holdings are significantly higher than pre-downgrade levels. Prior to the August 1, 2023, Fitch downgrade, foreign official institutions held **$4,013.9** billion in US Treasury securities in July 2023 [[^]](https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html). Immediately following the downgrade, holdings saw a slight decrease to **$3,993.4** billion in August 2023 [[^]](https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html). The February 2024 figure of **$4,082.9** billion represents an approximate **4.90%** year-over-year increase from February 2023. This current level is notably higher than those observed both before and immediately after the 2023 Fitch downgrade [[^]](https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html). ## Will CBO's 2026 Outlook Show Federal Debt Above 120%? Projected Federal Debt-to-GDP | 175% of GDP (by early 2026) [[^]](https://www.crfb.org/blogs/debt-rises-175-gdp-under-cbos-long-term-outlook) | Projection Period | 2026 to 2036 [[^]](https://ideas.repec.org/p/cbo/report/61882.html) | Source Report | February 2026 Budget and Economic Outlook [[^]](https://www.crfb.org/papers/cbos-february-2026-budget-and-economic-outlook) | **By mid-2026, federal debt-to-GDP ratio is projected to exceed 120%** By mid-2026, federal debt-to-GDP ratio is projected to exceed **120%**. The Congressional Budget Office (CBO)'s 10-year budget outlook is projected to show federal debt reaching **175%** of Gross Domestic Product (GDP) by that time [[^]](https://www.crfb.org/blogs/debt-rises-175-gdp-under-cbos-long-term-outlook). This specific forecast, anticipated around March 2, 2026, confirms that the debt-to-GDP ratio will significantly surpass the **120%** threshold [[^]](https://www.crfb.org/blogs/debt-rises-175-gdp-under-cbos-long-term-outlook). This projection is part of CBO's comprehensive budget and economic outlook. It is a core component of the CBO's broader budget and economic outlook, which offers a detailed analysis for the decade spanning 2026 to 2036 [[^]](https://ideas.repec.org/p/cbo/report/61882.html). The updated figures are sourced from the CBO's February 2026 Budget and Economic Outlook [[^]](https://www.crfb.org/papers/cbos-february-2026-budget-and-economic-outlook). The Committee for a Responsible Federal Budget (CRFB) specifically drew attention to this **175%** of GDP projection from the CBO's long-term outlook in early March 2026, emphasizing the anticipated increase in the nation's debt burden [[^]](https://www.crfb.org/blogs/debt-rises-175-gdp-under-cbos-long-term-outlook). ## Will Illinois, New Jersey, Kentucky CDS Spreads Widen by Late 2025? Illinois GO Bond Rating Outlook | 'A' with stable outlook (July 29, 2025) [[^]](https://www.fitchratings.com/research/us-public-finance/fitch-rates-illinois-1-7b-go-bonds-a-outlook-stable-29-07-2025) | New Jersey GO Bond Outlook | Revised to positive [[^]](https://www.kbra.com/publications/ykSmjXNg/kbra-revises-outlook-to-positive-for-new-jersey-go-and-related-state-appropriation-credits-affirms-outstanding-ratings-assigns-a-rating-to-njttfa-transportation-program-bonds-2025-series-aa) | Kentucky Fiscal Outlook | Budget pressures and downward revenue revisions for FY2026 [[^]](https://bit.ly/4jDN8Nm), [[^]](https://www.bondbuyer.com/news/kentucky-revises-revenue-projections-downward-for-fiscal-2026) | **Research indicates no evidence of significant CDS spread widening or fiscal contagion in late 2025** Research indicates no evidence of significant CDS spread widening or fiscal contagion in late 2025. There is no direct evidence to support a widening of credit default swap (CDS) spreads on general obligation bonds for Illinois, New Jersey, and Kentucky by more than 75 basis points in late 2025. Furthermore, the available information does not suggest a state-level fiscal contagion risk originating from these states. The research does not provide specific forecasts or data regarding CDS spreads for these states, nor does it discuss the magnitude of potential widening in late 2025. Illinois and New Jersey exhibit stable or improving credit outlooks despite pension debt. Despite Illinois and New Jersey being identified among states with significant per capita pension debt [[^]](https://reason.org/data-visualization/state-pension-debt/), their bond rating outlooks for 2025 indicate stability or improvement in their credit standing. Fitch Ratings assigned an 'A' rating with a stable outlook for Illinois' **$1.7** billion general obligation bonds as of July 29, 2025 [[^]](https://www.fitchratings.com/research/us-public-finance/fitch-rates-illinois-1-7b-go-bonds-a-outlook-stable-29-07-2025). Similarly, KBRA revised its outlook to positive for New Jersey's general obligation bonds and related state appropriation credits [[^]](https://www.kbra.com/publications/ykSmjXNg/kbra-revises-outlook-to-positive-for-new-jersey-go-and-related-state-appropriation-credits-affirms-outstanding-ratings-assigns-a-rating-to-njttfa-transportation-program-bonds-2025-series-aa). Kentucky faces fiscal challenges without specific CDS or rating projections to indicate a widening. While Kentucky faces fiscal challenges, evidenced by budget pressures and downward revenue revisions for fiscal year 2026 [[^]](https://bit.ly/4jDN8Nm), [[^]](https://www.bondbuyer.com/news/kentucky-revises-revenue-projections-downward-for-fiscal-2026), the research does not offer specific bond rating outlooks or CDS spread projections for the state that would support a significant widening in late 2025. There is no information suggesting a state-level fiscal contagion risk developing from these states within the provided sources. ## Are US Credit Ratings on Negative Watch for 2025 Debt Brinkmanship? Fitch Ratings Stance | Warned of debt ceiling stalemate risk in January 2025 [[^]](https://www.reuters.com/markets/us/fitch-warns-us-debt-ceiling-stalemate-despite-republican-controlled-government-2025-01-07/) | Moody's Outlook | Negative outlook on U.S. Aaa rating as of March 2025 [[^]](https://www.moodys.com/web/en/us/about-us/usrating.html) | S&P Global Outlook | Stable outlook on U.S. sovereign credit rating as of April 2025 [[^]](https://www.spglobal.com/ratings/en/research/articles/250414-u-s-fiscal-trajectory-hinges-on-budget-and-policy-outcomes-13474006) | **No major agency issued a formal 'negative credit watch' for 2025 political brinkmanship** No major agency issued a formal 'negative credit watch' for 2025 political brinkmanship. While credit rating agencies expressed concerns about the U.S. fiscal situation and governance, their actions or statements did not meet the criteria for a formal negative watch specifically tied to political brinkmanship during the 2025 debt ceiling negotiations. Fitch Ratings, which had previously downgraded the U.S. in August 2023, warned in January 2025 that a debt ceiling stalemate remained a risk despite a Republican-controlled government [[^]](https://www.reuters.com/markets/us/fitch-warns-us-debt-ceiling-stalemate-despite-republican-controlled-government-2025-01-07/). This constituted a warning rather than a formal 'negative credit watch' announcement for 2025. Moody's maintained a 'negative outlook' on the U.S. due to fiscal concerns. Moody's Investors Service maintained its 'negative outlook' on the U.S. Aaa rating as of March 2025, indicating a potential for a downgrade over the next 12-18 months. Their concerns centered on the U.S.'s fiscal strength, which they believe is on course for continued decline due to very large fiscal deficits and deteriorating debt affordability [[^]](https://www.moodys.com/web/en/us/about-us/usrating.html). This 'negative outlook' is a distinct action from a short-term 'negative credit watch' specifically tied to political brinkmanship. S&P maintained a 'stable outlook' on the U.S. sovereign credit rating. S&P Global Ratings maintained this 'stable outlook' as of April 2025 [[^]](https://www.spglobal.com/ratings/en/research/articles/250414-u-s-fiscal-trajectory-hinges-on-budget-and-policy-outcomes-13474006). This assessment suggests that S&P does not anticipate a rating change within the next two years, indicating a more stable near-term view compared to the other agencies' cautionary statements regarding future fiscal risks. ## What Could Change the Odds **Key takeaway.** Catalyst analysis unavailable. ## Key Dates & Catalysts - **Expiration:** January 07, 2027 - **Closes:** January 01, 2027 ## Decision-Flipping Events - Catalyst analysis unavailable. ## Related Research Reports - [China overtakes USA’s economy by 2030?](/markets/economics/growth/china-overtakes-usa-s-economy-by-2030/) - [Costco raises hot dog combo price?](/markets/economics/inflation/costco-raises-hot-dog-combo-price/) - [Next Fed rate hike?](/markets/economics/fed/next-fed-rate-hike/) - [US gas prices on Apr 29, 2026](/markets/economics/oil-and-energy/us-gas-prices-on-apr-29-2026/) ## Historical Resolutions No historical resolution data available for this series. ## Disclaimer This content is for informational and educational purposes only and does not constitute financial, investment, legal, or trading advice. Prediction markets involve risk of loss. Past performance does not guarantee future results. We are not affiliated with Kalshi or any prediction market platform. Market data may be delayed or incomplete. ### Data Sources & Model Transparency **Data Sources:** Octagon Deep Research aggregates information from multiple sources including news, filings, and market data. **Freshness:** Analysis is generated periodically and may not reflect the latest developments. Verify critical information from primary sources.