Karishma Vanjani
Longer-dated bond yields rose sharply to trade above the 5% mark Monday morning after Moody's officially took away the U.S. government's perfect credit rating. It's a largely symbolic move by the credit rating agency, but one that now shines the spotlight on the country's deficit issue.
The 30-year Treasury yield was trading up 0.135 percentage point at 5.032%. The 5% level has long been considered a key psychological threshold, one that could cause more selling and push yields even higher (Bond prices move in the opposite direction of yields). Higher yields create opportunities for investors to step in and buy -- they did the last time the long bond last closed above this level back in October 2023 -- but they also mean lower prices for the trillions of dollars in existing government bonds since yields move inversely to bond prices.
The move in bond yields comes after Moody's on Friday evening stripped the U.S. of its last triple-A credit rating. It should have hardly been news. Moody's blamed the large fiscal deficits and rising interest costs, both of which have long troubled investors. The U.S. interest on its debt has risen to 3.289% on average, while the U.S. has continued to spend more than it has earned for the past more than two decades.
Yet, the downgrade to Aa1 from Aaa matters. Moody's has had the U.S. on a watch since November 2023, but a cut now -- right at the time President Donald Trump is attempting to fashion a 'big beautiful bill' that would extend expiring tax cuts -- tells investors that they should take the fiscal situation more seriously. Moody's was the last holdout after other credit-rating firm S&P slashed its rating in August 2011 and Fitch in 2023.
The downgrade "is likely to fuel an already lit fire," writes James Egelhof, Chief US Economist at BNP. While members of Congress may normally not be as reflexive to the deficit concerns in the bond market, the issue now gets a spotlight, he added.
The 30-year wasn't the only Treausry on the move: The 10-year yield rose 0.115 point to 4.554% in early trading Monday.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
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(END) Dow Jones Newswires
May 19, 2025 09:04 ET (13:04 GMT)
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