Moody’s Ratings downgraded the U.S. credit rating from AAA to Aa1, marked by increasing government debt and rising interest payments. This one-notch downgrade reflects a significant rise in debt and interest ratios compared to similar-rated countries. The U.S. is grappling with a substantial budget deficit, which reached $1.05 trillion year to date, a 13% increase from last year. While tariffs contributed to reducing the imbalance recently, the overall fiscal situation remains precarious.
Moody’s had maintained a AAA rating longer than its competitors, Standard & Poor’s and Fitch, which downgraded U.S. debt in 2011 and 2023, respectively. The downgrade coincided with the House Budget Committee’s rejection of a comprehensive package intended to extend the 2017 tax cuts under President Trump. Moody’s criticized successive administrations and Congress for failing to address large annual fiscal deficits and increasing interest costs, indicating that the current fiscal proposals are unlikely to yield significant reductions in spending or deficits.
On the market front, the benchmark 10-year Treasury yield rose to 4.48%, and related funds, including the iShares 20+ Year Treasury Bond ETF, experienced declines. Peter Boockvar from Bleakley Financial Group noted that there’s less foreign demand for U.S. Treasuries, alongside the burden of continuous debt refinancing. This downgrade suggests a growing perception among investors that the U.S. is less of a safe haven for investment, especially noted by the weakening dollar against other currencies amid ongoing trade tensions.
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