Stock markets drop after US credit rating downgraded by Moody’s – business live | Business
Introduction: US digests Moody's credit rating downgrade
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
How did the US lose its triple-A credit rating? Gradually, then suddenly.
Moody’s dealt the death blow on Friday afternoon, announcing it was cutting its rating on US government debt to Aa1, one notch down from the gold-standard Aaa.
This is 14 years after S&P became the first major agency to downgrade the US, with Fitch following suit in 2023.
Moody’s cited the swelling US national debt – now $36trn – and growing interest costs, saying:
Over more than a decade, US federal debt has risen sharply due to continuous fiscal deficits. During that time, federal spending has increased while tax cuts have reduced government revenues. As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly.
Treasury secretary ScottBessent tried to brush aside the issue, telling CNN that he “does not put much credence in the Moody’s” downgrade.
We've inherited a 6.7% deficit-to-GDP, the highest outside war or recession.
Our focus is to grow the economy faster than the debt, that’s how we will stabilize debt-to-GDP. pic.twitter.com/yblwrunO9t
— Treasury Secretary Scott Bessent (@SecScottBessent) May 18, 2025
Bessent took a similar line to NBC, telling their Meet the Press program:
I think that Moody’s is a lagging indicator. I think that’s what everyone thinks of credit agencies. Larry Summers and I don’t agree on everything, but he said that’s when they downgraded the U.S. in 2011. So it’s a lagging indicator.
Investors may take the same view. After all, Moody’s is only reacting to information already available to the market.
On the other hand…. US borrowing costs have been rising in recent years, adding to fiscal pressures. Moody’s downgrade could be an excuse for some bond-holders to sell, pushing down prices and raising yields (the interest rate on Treasury bonds).
The timing of Moody’s move has prompted some eyebrow-raising, at a time when some Republican rebels in Congress are opposing Donald Trump’s ‘big, beautiful bill’, fearing tax cuts will make the fiscal position even worse.
The agenda
9.30am BST: S&P Global UK Consumer Sentiment Index
10am BST: Eurozone inflation report for April (final reading)
3pm BST: Conference Board Leading Economic Index of the US economy
Key events
Mohit Kumar of investment bank Jefferies predicts Moody’s downgrade will only have a “limited near term impact” on the markets, explaining:
For one, Moody’s was already above its peers from S&P and Fitch and the rating downgrade brings it in line with the other rating agencies.
Second, the move was not totally unexpected. We have been in the camp that we need to price in a higher risk premium for the US long end [ie longer-dated bonds].
Lastly, if history is any guide, rating action impact has typically been short-lived and the markets shrugging off the view in the medium term.
The dollar has dropped around 0.33% against a basket of other currencies this morning.
The pound is up about a third of a cent to $1.331.
Asia-Pacific markets drop after US downtrade
The immediate market reaction to Moody’s downgrade of the US credit rating is negative.
Asia-Pacific markets are lower today, while the futures market suggests Wall Street could drop by around 1% when trading begins.
In Toyko, Japan’s Nikkei share index is down 0.7% at 37,485 points in late trading. South Korea’s KOSPI has lost 1.2%, and Australia’s S&P/ASX is down 0.7%.
Gold, a classic safe-haven asset, is up 0.75% at $3,225 per ounce.
Kyle Rodda, senior financial market analyst at capital.com, says:
Asian markets opened the week on a mixed footing, with attention turning to the fallout from Moody’s downgrade of the US sovereign credit outlook. While the move is largely symbolic, it may put slight upward pressure on Treasury yields, which could tighten financial conditions globally—especially in more rate-sensitive parts of Asia.
The US Dollar is also a bit lower this morning and gold has gapped higher.
Introduction: US digests Moody's credit rating downgrade
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
How did the US lose its triple-A credit rating? Gradually, then suddenly.
Moody’s dealt the death blow on Friday afternoon, announcing it was cutting its rating on US government debt to Aa1, one notch down from the gold-standard Aaa.
This is 14 years after S&P became the first major agency to downgrade the US, with Fitch following suit in 2023.
Moody’s cited the swelling US national debt – now $36trn – and growing interest costs, saying:
Over more than a decade, US federal debt has risen sharply due to continuous fiscal deficits. During that time, federal spending has increased while tax cuts have reduced government revenues. As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly.
Treasury secretary ScottBessent tried to brush aside the issue, telling CNN that he “does not put much credence in the Moody’s” downgrade.
We've inherited a 6.7% deficit-to-GDP, the highest outside war or recession.
Our focus is to grow the economy faster than the debt, that’s how we will stabilize debt-to-GDP. pic.twitter.com/yblwrunO9t
— Treasury Secretary Scott Bessent (@SecScottBessent) May 18, 2025
Bessent took a similar line to NBC, telling their Meet the Press program:
I think that Moody’s is a lagging indicator. I think that’s what everyone thinks of credit agencies. Larry Summers and I don’t agree on everything, but he said that’s when they downgraded the U.S. in 2011. So it’s a lagging indicator.
Investors may take the same view. After all, Moody’s is only reacting to information already available to the market.
On the other hand…. US borrowing costs have been rising in recent years, adding to fiscal pressures. Moody’s downgrade could be an excuse for some bond-holders to sell, pushing down prices and raising yields (the interest rate on Treasury bonds).
The timing of Moody’s move has prompted some eyebrow-raising, at a time when some Republican rebels in Congress are opposing Donald Trump’s ‘big, beautiful bill’, fearing tax cuts will make the fiscal position even worse.
The agenda
9.30am BST: S&P Global UK Consumer Sentiment Index
10am BST: Eurozone inflation report for April (final reading)
3pm BST: Conference Board Leading Economic Index of the US economy
