US stock futures fell and Treasury yields rose after Moody’s downgraded the US government’s credit rating from the highest level, citing a growing budget deficit with little sign of improvement. S&P 500 futures dropped 1%, and Nasdaq futures fell 1.3%, while the dollar weakened slightly.
The downgrade reflects worries about the US debt and budget deficit amid ongoing political debates over tax cuts and trade policies. Moody’s joined Fitch and S&P in lowering the US rating below the top AAA level, marking a symbolic but confidence-shaking move.
Treasury yields climbed, with the 10-year note reaching about 4.50% and the 30-year nearing 5%, levels not seen since 2023. Analysts expect yields to rise further as investors demand higher returns due to increased risk.
The downgrade may pressure US lawmakers to reconsider aggressive tax cuts and adds to concerns about the US losing its economic edge, encouraging investors to look at other markets like Europe.
Meanwhile, China’s economy showed strength with faster-than-expected industrial growth in April, although retail sales were weaker than predicted. China also reduced its holdings of US Treasuries, now second to the UK.
Global markets reacted with declines in Asian stocks and a slight rise in gold prices, as investors sought safer assets amid uncertainty about the US economic outlook.
This credit rating change underscores growing challenges for the US economy, including political divisions and trade tensions, which could affect global financial markets in the near future.
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