Financial markets faced renewed volatility on Monday after Moody’s Ratings downgraded the United States’ credit rating, sparking widespread investor concern over rising federal debt and long-term fiscal sustainability.
The move—bringing Moody’s in line with other major rating agencies—stripped the US of its final triple-A rating, a symbolic shift that underscored growing alarm about the government’s budget trajectory.
Stocks declined broadly, the US dollar weakened, and bond yields surged—an unusual combination signaling investor discomfort with the economic outlook. Futures tied to major US indexes pointed to a rough open, with the Nasdaq Composite falling 1.5% in premarket trading, the S&P 500 down 1.1%, and the Dow Jones Industrial Average off by 0.6%.
Bond markets reflected heightened anxiety. The yield on the 10-year US Treasury note rose to 4.54%, while the 30-year yield briefly surpassed 5%—a level not seen in over a year. As yields move inversely to prices, this jump suggests investors were selling government bonds, long considered among the world’s safest assets.
The downgrade came shortly after a House committee approved a bill that would make President Donald Trump’s 2017 tax cuts permanent—a move projected to add trillions to the national debt. Though the legislation still faces congressional hurdles, its advancement added to existing concerns about the long-term fiscal picture.
In its rationale for the downgrade, Moody’s cited the expanding deficit, rising interest costs, and the political challenges of fiscal reform. The agency forecast the federal deficit could rise to nearly 9% of GDP by 2035, up from an estimated 6.4% in 2024, driven by entitlement spending, interest obligations, and relatively low tax revenues.
Market strategists emphasized the potential consequences of diminished demand for US government bonds.
“The combination of less foreign appetite for US debt and entrenched fiscal deficits is unsettling markets,” said George Saravelos, global head of FX research at Deutsche Bank.
The downgrade also pressured technology stocks, which are typically more sensitive to changes in interest rates. Shares of Tesla, Palantir, and Nvidia all declined significantly in premarket trading. Rising yields tend to reduce the present value of future earnings, dampening investor appetite for growth-oriented sectors.
While recent positive developments—such as a temporary pause in US-China tariffs—had buoyed markets, the Moody’s downgrade has shifted the tone. Analysts at Goldman Sachs and JPMorgan recently raised their projections for Treasury yields, citing continued economic strength and expectations that the Federal Reserve may delay rate cuts.
Gold prices jumped nearly 2% on Monday, reflecting a flight to safety amid growing market jitters. The WSJ Dollar Index, which measures the greenback against a basket of major currencies, also fell, highlighting waning investor confidence in US assets.
Federal Reserve officials acknowledged the risks. Raphael Bostic, president of the Atlanta Fed, told CNBC the downgrade could influence borrowing costs and ripple through the broader economy.
“There’s a lot of turbulence that’s happening right now,” he said.
Consumer sentiment has also softened. A University of Michigan survey released last week showed a dip in confidence, with respondents increasingly worried about inflation and economic policy uncertainty.
With input from the New York Times, CNBC, CBS News, and the Wall Street Journal.
