U.S. Treasury yields remained elevated on Monday afternoon after Moody’s downgraded the U.S. credit rating, though they receded from their earlier highs. The 30-year Treasury yield peaked at approximately 5.03%, a level not observed since November 2023, before settling at 4.921%, a rise of 2 basis points. The 10-year yield also climbed 2 basis points, reaching 4.459%, while the 2-year Treasury yield decreased by 1 basis point to 3.972%. Notably, one basis point equates to 0.01%, indicating that yields and prices move inversely.
After the initial shock of the downgrade dissipated, investors exhibited confidence in the bond market, resulting in buying activity that helped lower yields from their peaks. Moody’s decision, announced on Friday, to reduce the U.S.’s credit rating from Aaa to Aa1, was attributed to the rising burden of financing the government’s budget deficit and the elevated costs associated with managing existing debt in a high interest rate environment. The agency noted that the downgrade reflects over a decade of rising government debt and interest payment ratios, which now exceed those of similarly rated sovereign nations.
Additionally, this move by Moody’s marks a significant development, as they were the last major credit rating agency to assign the U.S. the highest rating. Analysts at Deutsche Bank noted that this downgrade is symbolic, aligning the U.S. with the second-highest rating given by all major rating agencies.
Historically, similar spikes in Treasury yields occurred in response to government actions, such as during the Trump administration’s implementation of reciprocal tariffs on international trade, which similarly influenced consumer debt rates like mortgages, tied to the 10-year note.
This situation reflects ongoing economic challenges but also presents opportunities for investors responding to market fluctuations. As confidence slowly returns to the market with increased bond purchasing, the hope remains for a stabilization in interest rates moving forward.