Ratings agency Fitch has downgraded its rating on U.S. debt from AAA to AA+. Yahoo Finance's Julie Hyman explains why Fitch made the move and why markets aren't reacting the same way they did in 2011, when a similar downgrade occurred.

Video Transcript

DIANE KING HALL: Let's get right to that top news. Fitch has indeed downgraded the US government's credit rating. Now, this is only the second time it's ever happened. The first was in 2011. It was historic then. When fellow credit rating agency S&P cut the rating to the same level, AA plus.

Julie Hyman is over at the touch to break this down for us. And I remember at the time that it was very surprising, Julie, you had this major move. And now this too surprising.

JULIE HYMAN: Yeah. Surprising in a very different way this time around. So just take a step back and put this in context here. There are three major credit rating agencies in the US, there is Fitch, which made this most recent downgrade. There is S&P. And there is Moody's.

Now, it was back in 2011 that S&P downgraded the rating of the US to AA+. That's where they remain today. Fitch just making its downgrade. Moody's remaining at AAA for US government debt.

And in terms of why Fitch is doing this at this time. They came out with this and talked about that it reflects expected deterioration here, a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters.

Basically, this harkening to the continuing and persistent battles over the debt ceiling, for example, and other fiscal matters. Even though this battle has been resolved a couple of months ago, Fitch deciding to pull the trigger and make this decision now.

Now, you look at what happened in markets back in 2011 at this time, you've got the S&P here in purple. You've got 10-year yields here in blue. We were coming sort of out of the aftermath of the financial crisis at that time. There were debt crises all over the world and concerns about ballooning debt in Europe, in particular, at that time.

And there, again, was a debt ceiling standoff. It was really a shock when S&P at that time made that downgrade. And that shock is reflected in the drop that we saw in the S&P 500. It ended up dropping a little more than 19% from its highs to its lows.

What happened on the yield side, though, was rather curious because rather than causing selling in the treasury market at that time, it actually caused buying in the treasury market and kept a lid on yields. That was because people were looking for safety in what felt like an uncertain environment. And even with the downgrade, treasuries were still seen as a safe place to be. So it was really kind of an interesting reaction, something similar kind of happening today, but we'll talk more about that.

And then what's interesting this time around are some of the reactions that we are getting as well. Oh, excuse me, I've got to remember this as well, putting this in context. The amount of overall marketable treasury debt has ballooned over this period of time. Even since 2011, we've seen it climb, and it's above $20 trillion.

So there is also some talk that a downgrade at this point might have less of an impact just because of the sheer size of the treasury market and how many different entities hold that treasury debt.

Now, to get to that reaction that we've gotten from several notable figures to this most recent decline, the most recent debt rating downgrade that we've had, Treasury Secretary Janet Yellen putting out a statement, for example, calling this move by Fitch arbitrary. She strongly disagrees. She says with Fitch Ratings' decision. So that's interesting.

Former Treasury Secretary Larry Summers called this bizarre and inept. And then Mohamed El-Erian, who's President of Queens College Cambridge and also a senior economic advisor to Allianz said he is very puzzled by this move by Fitch. Whereas the, again, the reaction was quite different back in 2011, it's interesting that a lot of head scratching going on at this move.