30-Year Treasury Yields Hit 5% as Moody’s Downgrade Fuels “Sell America” Sentiment

Uncle Sam’s pristine credit report just got a big blemish. The 30-year Treasury yield eclipsed 5% on Monday — a psychological barrier not consistently breached since Oct. 2023 — following Moody’s decision to strip the United States of its last perfect credit rating. The downgrade to Aa1, one step below AAA, has heightened concerns about America’s fiscal trajectory and helped fuel the emerging “Anywhere But USA” (ABUSA) investment sentiment.

• The US federal deficit is currently running near $2T annually (about 6.4% of GDP), with Moody’s projecting it will widen to nearly 9% by 2035, driven by larger interest payments, entitlement spending, and lower taxes.
• The downgrade comes as Congress considers a massive tax bill that could add $3.8T to the federal debt over the next decade, prompting ECB President Christine Lagarde to note the decline reflects “uncertainty and loss of confidence in US policies.”

ABUSA effect: Treasury Secretary Scott Bessent attempted to downplay concerns, quipping that “Moody’s is a lagging indicator — that’s what everyone thinks of credit agencies.” By contrast, Bridgewater founder Ray Dalio, who has been vocal about risks to the global order, said that the risk to the US was greater than Moody’s let on. The growing skepticism affected both bonds and equities on Monday, withTLT

(the largest long-dated Treasury ETF) plummeting 0.25% while the S&P 500 erased intraday losses, gaining 0.08%. However, Barclays’ Michael McLean, Anshul Pradhan, and Samuel Earl noted, “Credit downgrades of the US government have lost political significance after S&P downgraded the US in 2011, and there were limited, if any, repercussions.”