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The Short Answer

Does the S&P Downgrade Affect the Morningstar Style Box?

There's more to Morningstar's credit-quality ratings than just As and Bs.

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Question: Does Standard & Poor's recent downgrade of U.S. debt have an impact on the Morningstar Style Box for bonds? Is Morningstar using its own ratings for the bonds in a portfolio, or does it get them from the ratings agencies?

Answer: On Aug. 5, 2011, following a fitful controversy in Congress over raising the statutory debt ceiling, S&P lowered its long-term sovereign credit rating on the United States to AA+ from AAA. According to S&P, the highest AAA rating indicates an "extremely strong capacity to meet financial commitments," whereas the AA rating indicates a "very strong capacity to meet financial commitments."

The downgrade probably didn't help soothe the nerves of an already-unsteady Wall Street last week, but it shouldn't have an impact on your funds' placement in our style box. That's because U.S. debt remains at a AAA rating, according to Morningstar's credit-quality rating methodology.

Esther Pak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.