‘Sell America’ Trade Revived After Moody’s Downgrade Pushes 30-Year Yield to 5%
Investors revived the “Sell America” trade Monday morning following Moody’s downgrade of U.S. debt, with Treasury yields briefly spiking and stocks initially tumbling before staging a comeback. The 30-year Treasury yield climbed above the psychologically significant 5% level for the first time since late 2023, while the benchmark 10-year yield surged toward 4.5% as investors demanded higher premiums for holding U.S. government debt, according to CNN.
The downgrade came after Moody’s stripped the United States of its top AAA credit rating on Friday, citing America’s growing $36 trillion debt pile and Washington’s inability to find solutions to its budget deficit problems. The move makes Moody’s the last of the three major credit rating agencies to remove the U.S. from its highest rating tier.
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Markets Recover After Initial Shock
Despite the early morning volatility, U.S. stocks managed to recover throughout the day. By market close, the Dow Jones Industrial Average rose 137 points, or 0.3%, while the broader S&P 500 inched up 0.09% to extend its winning streak to six consecutive sessions. The tech-heavy Nasdaq managed a slight gain of 0.02%.
According to Bloomberg, the recovery came from “a renewed wave of dip buying” as several Wall Street strategists suggested that any pullback represented a buying opportunity amid momentum fueled by the recent easing of global trade tensions.
The market’s ability to shake off the downgrade news mirrors what happened following Fitch’s downgrade in 2023, though it stands in contrast to the sharper market reaction when S&P first downgraded U.S. debt in 2011. The resilience suggests that many investors had already priced in concerns about America’s fiscal trajectory.
Treasury Secretary Downplays Concerns
Treasury Secretary Scott Bessent attempted to reassure market participants by downplaying the significance of the rating cut. “Moody’s is a lagging indicator — that’s what everyone thinks of credit agencies,” Bessent said during an interview on NBC’s “Meet the Press” with Kristen Welker.
When pressed about whether Trump’s tax cut proposal would further exacerbate America’s debt crisis by reducing revenue, Bessent maintained that the administration’s economic policies would grow America’s economy to lower its surging debt-to-GDP ratio.
However, many analysts express skepticism about this approach. As Reuters reported, there’s growing concern in the market about the U.S. fiscal path, with investors “not assigning much credibility” to the deficit being brought down in a material way.
Long-Term Implications
Spencer Hakimian, founder of Tolou Capital Management, warned that the downgrade “will eventually lead to higher borrowing costs for the public and private sector in the United States.” These increased costs could filter down to consumers through higher mortgage rates, auto loan rates, and credit card interest.
The rating cut comes at a particularly sensitive time for U.S. fiscal policy, as Congress debates President Trump’s sweeping tax cut bill, which critics say could add trillions more to the federal debt. The legislation won approval from a key congressional committee on Sunday, pushing it closer to becoming law.
In its downgrade explanation, Moody’s projected federal deficits to widen to nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation. These forecasts paint a challenging picture of America’s long-term fiscal health.
Global Implications
The Moody’s downgrade adds another dimension to the recent “Sell America” sentiment that briefly gripped global markets in April, when President Trump’s tariff announcements caused investors to question the role of U.S. assets in their portfolios.
While that initial wave of selling subsided after the U.S.-China tariff truce, this latest development could reinforce doubts about America’s status as the unquestionable safe haven for global capital. Some international investors may increasingly look to diversify their holdings beyond U.S. stocks, bonds, and even the dollar.
European Central Bank President Christine Lagarde noted in a weekend interview with La Tribune Dimanche that the dollar’s recent decline against the euro reflects “the uncertainty and loss of confidence in U.S. policies among certain segments of the financial markets.”
