Topline
U.S. stock futures slid early on Monday, while long-dated Treasury yields breached the 5% mark after the financial ratings agency Moody’s downgraded the U.S. government’s credit ratings late last week, citing rising debt and interest payment ratios.
Moody’s lowered the U.S. government’s credit rating on Friday.
Key Facts
Futures for the benchmark S&P 500 index were down nearly 1.3% to 5905 points early on Monday, while the tech-focused Nasdaq Futures slid around 1.55% to 21,173 points.
Dow Futures were down by more than 360 points or around 0.85%.
Yields for 30-year U.S. Treasury notes breached the 5% mark for the first time since October 2023—back when the Federal Reserve was trying to stabilize inflation by sharply raising interest rates.
Aside from the brief spike in October 2023, 30-year yields last touched 5% in 2007.
What Do We Know About The Moody’s Downgrade?
On Friday, Moody’s downgraded the U.S. government’s credit rating from Aaa—its top prime grade—to Aa1 or high grade, which is one notch below. With its downgrade, Moody’s became the last of the three big ratings firms to lower the U.S. government’s credit rating from the top level. The agency said the single rung downgrade reflected “the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.” The agency added that successive presidential administrations and Congress have “failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.” However, despite the downgrade, Moody’s changed the U.S.’s outlook from negative to stable, noting: “The US retains exceptional credit strengths, such as the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency.”
What To Watch For
The ratings downgrade and Moody’s concerns about the government’s debt come amid a Republican effort to pass President Donald Trump’s signature policy agenda, which will enact $4.5 trillion in tax cuts over 10 years. According to an estimate published by the nonpartisan Committee for a Responsible Federal Budget, the GOP’s big budget bill will add $3.3 trillion more to the U.S. federal debt over the next 10 years. Despite opposition from conservative deficit hawks, the House Budget Committee voted to move the bill forward on Sunday night.
Further Reading
Moody’s Slashes United States’ Credit Rating Over Rising Government Debt And Interest (Forbes)
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