Higher Treasury Yields To Blunt Recovery In U.S. Stock Market

Treasury Secretary Scott Bessent downplayed concerns over Moody’s late-Friday decision to downgrade U.S. sovereign debt from AAA to Aa1, calling ratings agency actions “a lagging indicator,” Laura Sanicola and Janet H. Cho reported for Barron’s Daily.

Recent Treasury auctions have shown net buying of U.S. debt by indirect bidders, including central banks.

Moody’s was the last major credit-rating agency to cut the U.S. debt rating, warning that government spending is on an unsustainable path. Lawmakers are currently trying to extend President Donald Trump’s 2017 tax cuts, a move that could add $4 trillion to the federal deficit over the next decade.

Markets may have already priced in the downgrade, as the U.S. hasn’t had a perfect AAA rating across all agencies for some time, said Gregory Peters, co-chief investment officer at PGIM Fixed Income. He expects the overall impact to be minimal.

Recent Treasury auctions have shown net buying of U.S. debt by indirect bidders, including central banks, noted Ben Emons, chief investment officer and founder of FedWatch Advisors.

Weekly data from Japan’s Ministry of Finance also show that Japan continues to purchase U.S. Treasurys.

However, yields have risen—from 4.1% to nearly 4.5%. Inflation data do not yet reflect the elevated tariffs on Chinese goods that were in place for over a month before being partially lifted last week.

If inflation remains sticky, it could keep Treasury yields high and cause the Federal Reserve to delay interest rate cuts—adding further pressure on U.S. stocks, Emons said.