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3mo ago

Moody's Downgrade of U.S. Credit Rating Sparks Market Volatility Before Stabilizing

The downgrade to Aa1 highlights fiscal challenges but has had limited long-term market impact as investors assess U.S. economic resilience.

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Pedestrians walk past an electronic board showing the Nikkei 225 index on the Tokyo Stock Exchange along a street in central Tokyo on May 19, 2025.
The S&P 500 was largely flat Monday, recouping earlier losses after Moody's lowered the U.S. credit rating.
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Overview

  • Moody's lowered the U.S. sovereign credit rating from Aaa to Aa1 on May 16, citing rising deficits and debt rollover risks.
  • Initial market reactions included stock selloffs and a rise in Treasury yields, with the 30-year yield surpassing 5% for the first time since 2023.
  • Investors largely recovered confidence by late May 19, with major indices rebounding and Treasury yields stabilizing below earlier highs.
  • The downgrade marks the third such action by major credit agencies, following similar moves by S&P in 2011 and Fitch in 2023.
  • Ongoing concerns remain over U.S. fiscal policy, trade tensions, and a proposed tax-and-spending bill that could add trillions to the federal debt.