Moody’s downgraded the US sovereign credit rating on Friday due to concerns about the nation’s growing $36 on debt pile.
The credit rating agency cut the US government’s rating by one notch to “AA1” from ‘AAA’, and changed its outlook on the US to “stable” from “negative.” Moody’s first gave the United States its pristine “Aaa” rating in 1919 and is the last of the three major credit agencies to downgrade it.
The cut follows a change in 2023 in the agency’s outlook on the sovereign due to wider fiscal deficits and higher interest payments.
“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said on Friday.
Since his return to the White House on January 20, Trump has said he would balance the budget while his Treasury Secretary, Scott Bessent, has repeatedly said the current administration aims to lower US government funding costs. But the administration’s attempts to raise revenue and cut spending have so far failed to persuade investors, Reuters reported.
Moody’s said the fiscal proposals under consideration were unlikely to lead to a sustained, multi-year reduction in deficits, and it estimated the federal debt burden would rise to about 134% of GDP by 2035, compared with 98% in 2024.
The cut follows a downgrade by rival Fitch, which in August 2023 also cut the US sovereign rating by one notch, citing expected fiscal deterioration and repeated down-to-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills, Reuters reported.
Fitch was the second major rating agency to strip the United States of its top triple-A rating, after Standard & Poor’s did so after the 2011 debt ceiling crisis.
US Markets Reaction
Moody’s downgrade, which came after market close, sent yields on Treasury bonds higher.
Yields on US 2-year Treasuries accelerated a rise, and were up 2 basis points (bps) late on Friday at 3.993%. They climbed to a session peak of 4.012%. Yields on benchmark 10-year notes reversed the earlier drop and rose as high as 4.499%.
(With inputs from Reuters)
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