'Sell America' is back as long-dated Treasurys hit 5% in wake of Moody's downgrade
The return on 30-year Treasurys rose as much as 0.13 percentage points to 5.03% as at 5:30 a.m. ET to the highest level since late 2023.
The 10-year yield also rose about 10 basis points to 4.5%. When yields rise, the price of the bond decreases.
"If we stay at these levels this would be a higher yield than that seen at the worst close after Liberation Day," Jim Reid, managing director and head of global macro and thematic research at Deutsche Bank, said in a note on Monday.
The previous triple-A rating signified that an economy poses minimal risk and is in a good position to repay its debts. Aa1 is the second-highest rating and indicates a country is subject to very low credit risk. Other countries with the top rating include the European Union, Canada, and Germany.
"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 in a statement.
The ratings agency said it expected federal debt to rise from 98% of gross domestic product in 2024 to about 135% by 2035.
S&P was the first agency to downgrade the US from the top score in August 2011.
"The combination of diminished appetite to buy US assets and the rigidity of a US fiscal process that locks in very high deficits is what is making the market very nervous," George Saravelos, Deutsche Bank's head of FX research, said in a note on Monday.
He added that a key problem for the US was bond and currency markets failing to properly price in fiscal risks.
S&P 500 futures fell more than 1% in premarket trading, while Nasdaq futures were down more than 1.5% and Dow futures shed close to 1%.
"US-related stocks and investment trusts dominated the list of losers on Monday morning in London, while precious metals miners were higher as gold and silver prices moved up and the dollar weakened," AJ Bell investment director Russ Mould wrote in a Monday note.
"Significantly, the US 30-year Treasury yield flashed a warning signal as it hit the 5% mark for the first time since April, with the proposed tax cuts making their way through Congress, expected in some quarters to increase the US deficit."
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