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Yomiuri Shimbun
21-05-2025
- Business
- Yomiuri Shimbun
Moody's Downgrade Ripples through Bond Market, Causes Worries for Stocks
Reuters file photo Signage is seen outside the Moody's Corporation headquarters in Manhattan, New York, U.S., November 12, 2021. NEW YORK, May 20 (Reuters) – Moody's U.S. debt downgrade is raising concerns that investors could reevaluate their appetite for U.S. government bonds, with the potential for rising yields to put pressure on stocks that are trading at elevated valuations. Moody's decision to downgrade the U.S. debt rating by a notch late last week due to mounting government debt and rising interest expenses has rekindled fears of a broader investor reappraisal of U.S. sovereign debt, which could drive up borrowing costs across the economy. 'Every time something like this happens, investors just think maybe they should shift a little more out of the U.S.,' said Campe Goodman, fixed-income portfolio manager at Wellington Management Company. Benchmark 10-year yields, which influence mortgage rates as well as borrowing costs for companies and consumers, rose to over 4.5% early on Monday but the selloff then moderated. Yields move inversely to prices. On Tuesday, the bond market selloff continued, with the 10-year yield last seen at 4.48%, slightly above where it closed on Monday. Longer-dated 30-year yields rose more sharply, hitting a high of over 5% on Monday, the highest since November 2023, and flirting with that level again on Tuesday. Higher yields have repercussions for stocks, analysts and investors say, as they represent higher borrowing costs for companies as well as greater investment competition from fixed income. Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, said a rise in 10-year yields beyond 4.5% could be a headwind for stocks. 'I think what markets are grappling with, is if the 30-year is breaking out, does that mean the rest of the curve is next?' Miskin said. Over the past few years, stocks have come under pressure during some instances when Treasury yields moved above 4.5%, with sharply rising yields often negatively correlated with stock performance. One prominent example is late 2023 when the S&P 500 slid sharply as the 10-year yield ascended to 5%. In a note on Monday, Morgan Stanley equity strategist Michael Wilson said 4.5% on the 10-year yield has been 'an important level' for equity market valuation over the past two years, with stocks tending to face valuation pressure when 10-year yields breach that threshold. The price-to-earnings ratio for the S&P 500, based on earnings estimates for the next 12 months, was at 21.7 as of Monday, well above its long-term average of 15.8, according to LSEG Datastream. Wilson, however, said while a break above 4.5% in the 10-year yield 'can lead to modest valuation compression … we would be buyers of such a dip,' he said in the note, citing the recent U.S.-China trade truce as positive for equity markets. The downgrade has come as Republicans in Congress seek to approve a sweeping package of tax cuts aimed at boosting economic growth that at the same time could add trillions to the $36 trillion U.S. public debt pile, exacerbating concerns highlighted by Moody's over the U.S. fiscal trajectory. It also follows a detente in the trade war sparked by President Donald Trump's imposition of tariffs on U.S. trade partners. While tariffs are largely seen as being a drag for the economy, a recent trade breakthrough with China had sparked market optimism that their impact would be more muted than feared. 'You move from fears of stagflation, which was low growth and tariff-led inflation, to a better growth backdrop but probably not a better inflation or fiscal backdrop, as you still have this big tax bill getting pushed through,' said Ross Mayfield, investment strategist at Baird. Federal Reserve officials on Monday said the Moody's downgrade could have repercussions for the U.S. economy by raising the cost of capital. The ratings cut was unlikely to trigger forced selling of Treasuries, as major fixed-income indices only require securities to maintain an investment-grade rating or have no specific sovereign rating guidelines, analysts at BofA Securities said in a note on Monday. Still, it could cause the yield curve to steepen, they said, with long-dated yields rising due to worsening investor sentiment around the long-term prospects of U.S. debt. 'There could be a time when the bond market gets quite worried that we're continuing to stimulate an economy that's not weak,' Goodman said.
Economic Times
21-05-2025
- Business
- Economic Times
Moody's downgrade ripples through bond market, causes worries for stocks
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Moody's U.S. debt downgrade is raising concerns that investors could reevaluate their appetite for U.S. government bonds, with the potential for rising yields to put pressure on stocks that are trading at elevated decision to downgrade the U.S. debt rating by a notch late last week due to mounting government debt and rising interest expenses has rekindled fears of a broader investor reappraisal of U.S. sovereign debt, which could drive up borrowing costs across the economy."Every time something like this happens, investors just think maybe they should shift a little more out of the U.S.," said Campe Goodman, fixed-income portfolio manager at Wellington Management 10-year yields, which influence mortgage rates as well as borrowing costs for companies and consumers, rose to over 4.5% early on Monday but the selloff then moderated. Yields move inversely to prices. On Tuesday, the bond market selloff continued, with the 10-year yield last seen at 4.48%, slightly above where it closed on 30-year yields rose more sharply, hitting a high of over 5% on Monday, the highest since November 2023, and flirting with that level again on yields have repercussions for stocks, analysts and investors say, as they represent higher borrowing costs for companies as well as greater investment competition from fixed income Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, said a rise in 10-year yields beyond 4.5% could be a headwind for stocks. "I think what markets are grappling with, is if the 30-year is breaking out, does that mean the rest of the curve is next?" Miskin the past few years, stocks have come under pressure during some instances when Treasury yields moved above 4.5%, with sharply rising yields often negatively correlated with stock performance. One prominent example is late 2023 when the S&P 500 slid sharply as the 10-year yield ascended to 5%.In a note on Monday, Morgan Stanley equity strategist Michael Wilson said 4.5% on the 10-year yield has been "an important level" for equity market valuation over the past two years, with stocks tending to face valuation pressure when 10-year yields breach that price-to-earnings ratio for the S&P 500, based on earnings estimates for the next 12 months, was at 21.7 as of Monday, well above its long-term average of 15.8, according to LSEG however, said while a break above 4.5% in the 10-year yield "can lead to modest valuation compression ... we would be buyers of such a dip," he said in the note, citing the recent U.S.-China trade truce as positive for equity downgrade has come as Republicans in Congress seek to approve a sweeping package of tax cuts aimed at boosting economic growth that at the same time could add trillions to the $36 trillion U.S. public debt pile, exacerbating concerns highlighted by Moody's over the U.S. fiscal trajectory It also follows a detente in the trade war sparked by President Donald Trump's imposition of tariffs on U.S. trade partners. While tariffs are largely seen as being a drag for the economy, a recent trade breakthrough with China had sparked market optimism that their impact would be more muted than feared."You move from fears of stagflation, which was low growth and tariff-led inflation, to a better growth backdrop but probably not a better inflation or fiscal backdrop, as you still have this big tax bill getting pushed through," said Ross Mayfield, investment strategist at Reserve officials on Monday said the Moody's downgrade could have repercussions for the U.S. economy by raising the cost of ratings cut was unlikely to trigger forced selling of Treasuries, as major fixed-income indices only require securities to maintain an investment-grade rating or have no specific sovereign rating guidelines, analysts at BofA Securities said in a note on it could cause the yield curve to steepen, they said, with long-dated yields rising due to worsening investor sentiment around the long-term prospects of U.S. debt."There could be a time when the bond market gets quite worried that we're continuing to stimulate an economy that's not weak," Goodman said.
Time of India
21-05-2025
- Business
- Time of India
Moody's downgrade ripples through bond market, causes worries for stocks
Moody's U.S. debt downgrade is raising concerns that investors could reevaluate their appetite for U.S. government bonds, with the potential for rising yields to put pressure on stocks that are trading at elevated valuations. Moody's decision to downgrade the U.S. debt rating by a notch late last week due to mounting government debt and rising interest expenses has rekindled fears of a broader investor reappraisal of U.S. sovereign debt, which could drive up borrowing costs across the economy. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Moose Approaches Girl At Bus Stop In National Capital Region - Watch What Happens Happy in Shape Undo "Every time something like this happens, investors just think maybe they should shift a little more out of the U.S.," said Campe Goodman, fixed-income portfolio manager at Wellington Management Company. Bonds Corner Powered By Moody's downgrade ripples through bond market, causes worries for stocks Moody's downgrade of U.S. debt is fueling concerns about investor appetite for U.S. government bonds, potentially driving yields higher. Rising yields could pressure stocks with elevated valuations, as they represent increased borrowing costs and investment competition. While a trade truce offers some optimism, the downgrade and proposed tax cuts raise concerns about the U.S. fiscal trajectory. SBI to raise $3 billion through senior unsecured notes in FY26 How will higher anchor investor allocation impact lower rated bond market? RBI accepts lower bond purchase amount in first FY26 OMO auction Sebi simplifies operational process of cash flow disclosure in corp bond database Browse all Bonds News with Benchmark 10-year yields, which influence mortgage rates as well as borrowing costs for companies and consumers, rose to over 4.5% early on Monday but the selloff then moderated. Yields move inversely to prices. On Tuesday, the bond market selloff continued, with the 10-year yield last seen at 4.48%, slightly above where it closed on Monday. Longer-dated 30-year yields rose more sharply, hitting a high of over 5% on Monday, the highest since November 2023, and flirting with that level again on Tuesday. Live Events Higher yields have repercussions for stocks, analysts and investors say, as they represent higher borrowing costs for companies as well as greater investment competition from fixed income . Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, said a rise in 10-year yields beyond 4.5% could be a headwind for stocks. "I think what markets are grappling with, is if the 30-year is breaking out, does that mean the rest of the curve is next?" Miskin said. Over the past few years, stocks have come under pressure during some instances when Treasury yields moved above 4.5%, with sharply rising yields often negatively correlated with stock performance. One prominent example is late 2023 when the S&P 500 slid sharply as the 10-year yield ascended to 5%. In a note on Monday, Morgan Stanley equity strategist Michael Wilson said 4.5% on the 10-year yield has been "an important level" for equity market valuation over the past two years, with stocks tending to face valuation pressure when 10-year yields breach that threshold. The price-to-earnings ratio for the S&P 500, based on earnings estimates for the next 12 months, was at 21.7 as of Monday, well above its long-term average of 15.8, according to LSEG Datastream. Wilson, however, said while a break above 4.5% in the 10-year yield "can lead to modest valuation compression ... we would be buyers of such a dip," he said in the note, citing the recent U.S.-China trade truce as positive for equity markets. The downgrade has come as Republicans in Congress seek to approve a sweeping package of tax cuts aimed at boosting economic growth that at the same time could add trillions to the $36 trillion U.S. public debt pile, exacerbating concerns highlighted by Moody's over the U.S. fiscal trajectory . It also follows a detente in the trade war sparked by President Donald Trump's imposition of tariffs on U.S. trade partners. While tariffs are largely seen as being a drag for the economy, a recent trade breakthrough with China had sparked market optimism that their impact would be more muted than feared. "You move from fears of stagflation, which was low growth and tariff-led inflation, to a better growth backdrop but probably not a better inflation or fiscal backdrop, as you still have this big tax bill getting pushed through," said Ross Mayfield, investment strategist at Baird. Federal Reserve officials on Monday said the Moody's downgrade could have repercussions for the U.S. economy by raising the cost of capital. The ratings cut was unlikely to trigger forced selling of Treasuries, as major fixed-income indices only require securities to maintain an investment-grade rating or have no specific sovereign rating guidelines, analysts at BofA Securities said in a note on Monday. Still, it could cause the yield curve to steepen, they said, with long-dated yields rising due to worsening investor sentiment around the long-term prospects of U.S. debt. "There could be a time when the bond market gets quite worried that we're continuing to stimulate an economy that's not weak," Goodman said.
