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Moody’s Investors Service said its top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries” because their public finances are worsening in the wake of the global financial crisis.

The U.S. and U.K. have “resilient” Aaa ratings, as opposed to the “resistant” top ratings of Canada, Germany and France, analysts led by Pierre Cailleteau said today in a report. None of the top-rated countries is “vulnerable,” or have public finances that are “stretched beyond the point of ‘no return’ to the Aaa category,” New York-based Moody’s said.

The dollar weakened to 88.67 yen, from 89.51 yen, and was little changed at $1.4834 per euro. The pound fell against all 16 most-traded counterparts, dropping to $1.6324, from $1.6446. It weakened to 90.89 pence per euro, from 90.16. U.K. bonds rose, pushing the yield down 8 basis points to 1.08 percent, the biggest drop since Nov. 9.

“There has been a huge increase in debt-to-gross-domestic- product ratios as a result of the crisis,” said David Keeble, head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “It’s right that there should be a lot of attention and pressure on these numbers.”

The U.S.’s debt burden will climb to 97.5 percent of gross domestic product next year from 87.4 percent, the Organization for Economic Cooperation and Development forecast in June. National debt in the U.S. climbed to $7.17 trillion in November. The U.K.’s public debt will swell to 89.3 percent of the economy in 2010 from 75.3 percent this year, according to the OECD.

‘Resistant’ Countries

All Aaa rated governments are affected by the global financial crisis, with differences in their impact and ability to respond, Moody’s said. “Resistant” countries, which also include New Zealand and Switzerland, started from a more robust position and won’t see debt exceeding levels consistent with their Aaa status, Moody’s said.

Moody’s defines “resilient” countries as “Aaa countries whose public finances are deteriorating considerably and may therefore test the Aaa boundaries, but which display, in our opinion, an adequate reaction capacity to rise to the challenging and rebound.”

The cost of protecting U.S. debt from default was unchanged at 32 basis points, or $32,000 a year to protect $10 million of the nation’s bonds from default for five years, according to CMA DataVision prices. That compares with a peak of 100 basis points in February and 20 basis points in October.

The cost of protecting U.K. debt from default was equivalent to that of Portugal, which is rated Aa2 by Moody’s, its third-highest grade.

Credit-default swaps on U.K. government debt cost 74 basis points, up from 72.5 yesterday, according to CMA prices. The U.K. contracts, which peaked at 175 basis points in February, rose from 44 basis points on Sept. 30, CMA prices show.

‘Dismal Fundamentals’

“The U.K.’s fundamentals are dismal and don’t support the ratings,” said Mark Schofield, head of interest-rate strategy in London at Citigroup Inc. “Only if some pretty draconian fiscal measures are in place will the U.K. keep hold of its Aaa rating.”

British Chancellor of the Exchequer Alistair Darling said yesterday that he would rather suffer criticism for removing support for the economy too late than too early, signaling he will put off measures to reduce Britain’s biggest budget deficit since World War II.

‘Determined Effort’

“I do think we need to make a determined effort to get our debt down,” Darling said. “I would rather be found guilty of removing the support slightly too late than slightly too early.”

The U.K. entered the crisis in a vulnerable position and is now facing an “inexorable deterioration of debt affordability,” Moody’s said. The government’s ability to borrow large amounts of money at favorable terms supports its ratings, according to the report.

The expansion of the U.S. economy won’t be enough for it to make “major progress” in reducing its budget deficit, the ratings company said.

“It’s difficult to drive a big wedge between the U.S. and U.K. in terms of their fiscal outlook,” said Calyon’s Keeble. “The flexibility that Moody’s spoke about isn’t obvious. It’s all a matter of political willpower.”

Countries with Aaa ratings aren’t likely to be downgraded anytime soon even after being “severely hit” by the global economic crisis, Moody’s said on Sept. 9. The U.K. and the U.S. have “lost altitude” in their ratings even as they remain resilient, Moody’s said in the report.

http://www.bloomberg.com/apps/news?pid=206...jVo8o&pos=2