Moody’s downgrade rattles markets, Treasury yields climb, Bitcoin retreats

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Moody’s latest downgrade of U.S. sovereign debt has sent shockwaves through financial markets, stripping the country of its top-tier credit rating and raising serious concerns about the nation’s fiscal trajectory. The downgrade from Aaa to Aa1 comes as the federal deficit balloons, with projections indicating an additional $4 trillion in debt over the next seven years. Investors are bracing for the fallout, and early signs suggest turbulence ahead.

The bond market is already reacting. The 30-year Treasury yield has surged past 5 percent, a level not seen since 2007. The 10-year yield is also climbing, now sitting at 4.5 percent. Historically, credit downgrades have triggered stock sell-offs while bonds rallied, but this time, the reaction is mixed. Some traders are pulling out of equities, while others are betting on select opportunities amid the chaos.

Bitcoin, often seen as a hedge against economic instability, is retreating from its recent highs. After hitting $107,060 in overnight trading, the cryptocurrency has dropped 0.8 percent to $103,298. Just last week, Bitcoin recorded its highest-ever weekly close near $106,500, but the downgrade has spooked investors. Risk appetite is fading, and traders are shifting toward safer assets.

The downgrade is not just a symbolic blow—it has real consequences. Borrowing costs for the federal government are expected to rise, which could trickle down to consumers in the form of higher mortgage rates, credit card interest, and business loan costs. Moody’s cited political dysfunction as a key factor, pointing to Congress’s inability to rein in spending or implement meaningful fiscal reforms. The agency warned that deficits could climb from 6.4 percent of GDP in 2024 to nearly 9 percent by 2035.

States are likely to push back against the downgrade, arguing that their own fiscal policies remain strong despite federal mismanagement. Some governors have already signaled that they will challenge the implications of the rating cut, emphasizing their balanced budgets and economic resilience.

Big Tech, once considered the safest bet in the market, is now facing uncertainty. The sector has been a pillar of stability for investors, but with rising interest rates and economic instability, even the giants are under scrutiny. Companies that thrived in a low-rate environment may struggle as borrowing costs increase.

Sources:

https://www.morningstar.com/news/marketwatch/20250518140/investors-brace-for-reaction-after-moodys-strips-us-of-its-top-credit-rating

https://finance.yahoo.com/news/wall-street-strategists-react-moody-220113452.html

https://www.fox5atlanta.com/news/us-credit-rating-downgrade-moody