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Moody’s Downgrades U.S. Credit Rating, Triggering Market Volatility

The U.S. sovereign credit rating was cut to Aa1 due to rising debt and deficits, spurring declines in global equities, higher Treasury yields, and a weaker dollar.

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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.

Overview

  • Moody’s downgraded the U.S. sovereign credit rating from Aaa to Aa1, citing challenges in managing the $36 trillion national debt and high borrowing costs.
  • U.S. stock futures dropped, with the S&P 500 and Nasdaq futures down over 1%, while Treasury yields climbed, with the 30-year yield surpassing 5% for the first time since late 2023.
  • Global markets reacted negatively, with Asian equities falling and the U.S. dollar weakening against major currencies.
  • South Korea’s finance ministry pledged to monitor potential market volatility, noting the downgrade had been anticipated but could still impact short-term conditions.
  • Officials, including U.S. Treasury Secretary Scott Bessent, downplayed the downgrade as a lagging indicator, while analysts warned of broader fiscal and trade policy concerns affecting investor confidence.