U.S. Treasury yields spiked on Monday after Moody’s downgraded the U.S.’ credit rating, causing investors to dump bonds. Rates hit key levels that have pressured financial markets recently.
The 30-year Treasury yield was up 12 basis points to 5.012%. The 10-year yield climbed 10 basis points to reach 4.54%. Meanwhile, the 2-year Treasury yield was up 4 basis points, reaching 4.023%.
One basis point is equivalent to 0.01%, and yields and prices move in opposite directions.
Investor concerns mounted after the rating agency Moody’s slashed the U.S.’ credit rating on Friday, bringing it down one notch from Aaa — the highest score — to Aa1. The agency attributed the downgrade to the increasing burden of financing the government’s budget deficit as well as the high cost of rolling over existing debt amid high interest rates.
“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” it said in a statement.
Moody’s has assigned a “country ceiling rating” of Aaa to the U.S. since 1949. To be sure, it’s now in line with all the major credit rating agencies which had already given the U.S. their second-highest available rating.
“This is a major symbolic move as Moody’s were the last of the major rating agencies to have the U.S. at the top rating,” Deutsche Bank analysts said in a note.
30-year Treasury yield, YTD
In April, Treasury yields jumped after U.S. President Donald Trump implemented sweeping “reciprocal tariffs” on international trade partners. The 10-year yield moved above 4.5% and the 30-year rate hit 5%, causing the Trump administration to back off the stiffest tariffs on fears they was causing a financial panic and would raise rates for consumers.
But now following the move by Moody’s, the long-term Treasury yields have returned to these levels. Loans for houses, cars and credit cards track these rates. Stock futures were lower as yields surged, with Dow futures down more than 300 points early Monday.
10-year Treasury yield, YTD
House Republicans were pushing ahead with Trump’s tax and spending bill this week, with the legislation making it past the House Budget Committee Sunday evening. The bill, however, is estimated to add trillions to the budget deficit.
Moody’s warned about the lack of the country’s fiscal restraint in its downgrade: “Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs. We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”
“With tax cuts and tariffs hanging in the balance, Moody’s appears to be sending a message that it thinks these policy changes will, on net, put the US on an even worse fiscal trajectory,” wrote Bank of America economist Aditya Bhave in a note. “That is, tariff revenues won’t fully offset the cost of the proposed tax bill. We agree.”
Concerns about tariffs and the U.S. debt burden are raising questions about whether Treasurys are still a safe haven asset for global investors.
Investors will also keep an eye out for speeches from U.S. central bank officials on Monday, including Atlanta Federal Reserve President Raphael Bostic, New York Fed President John Williams, and Dallas Fed President Lorie Logan.
