The international credit rating agency Moody's has downgraded the United States' national credit rating by one notch, leading to increased uncertainty in the U.S. financial markets. On the 19th, U.S. stock index futures fell across the board, and Government Bonds yields rose.
According to Bloomberg, as of 9:36 a.m. on the same day, S&P 500 and Nasdaq 100 futures fell by 0.82% and 1.03%, respectively, compared to the previous trading day. The Dow Jones Industrial Average futures also dropped by 0.66%.
The yield on U.S. 10-year Government Bonds reached 4.475%, up 4.4 basis points from the previous session. This figure is close to the recent level of 4.49%. The market believes that the downgrade in credit rating could increase the risk premium on U.S. Government Bonds, leading to upward pressure on yields. Wells Fargo analyzed that the yields on 10-year and 30-year Government Bonds could rise an additional 5 to 10 basis points.
Earlier, on the 16th, Moody's downgraded the United States' national credit rating from the highest rating of "Aaa" to the lower grade of "Aa1." Moody's noted, "The persistent fiscal deficits and tax cuts over the past decade have put a strain on fiscal soundness."
In response, U.S. Secretary of the Treasury Scott Vessen said in an NBC News interview on the 18th, "Moody's is a lagging indicator, and I do not trust it." He claimed, "The fiscal deficit inherited from the Biden administration is the background."
There are also projections that the impact of this credit rating downgrade may be limited, as it was within the range of market expectations. Investment bank Barclays assessed, "Moody's decision had been anticipated when it adjusted the credit rating outlook to 'negative' in November 2023."
In fact, earlier, Standard & Poor's (S&P) downgraded the United States' credit rating from AAA to AA+ in 2011, and Fitch downgraded it to the same grade last August. Right after S&P's downgrade, the S&P 500 index plummeted by 6.66% in just one day, but after Fitch's downgrade, the decline was limited to 1.38%.
The dollar is showing weakness, while safe assets like gold and the yen are on the rise. The dollar index recorded a drop of 0.336 points to 100.756. The yen-dollar exchange rate is trading at 145.16 yen, down 0.54 yen from the previous session.
The spot price of gold is moving around $3,247 per ounce, up 1.36% from the previous session.
Major Asian stock indexes also showed weakness. On the same day, the KOSPI fell by 0.44%, and the Nikkei 225 index in Japan dropped by 0.52%.