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U.S. 30-year Treasury yield surges past 5% as Moody's strips last AAA rating.
The 30-year climbed above 5.00% for the first time since April's tariff announcement, while the 10-year spiked 10 basis points to 4.54% amid escalating funding costs. Moody's move to cut the U.S. sovereign from Aaa to Aa1 follows Fitch's post-2023 debt-ceiling downgrade and S&P's 2011 action, leaving no agency on top.
In its statement, Moody's warned that rising entitlement spending and flat revenue will drive multi-year deficits higher, eroding fiscal health relative to peers. A key congressional budget committee's approval of a sweeping tax bill has stoked debt fears further, dragging S&P 500 futures down about 1% as markets price in wider budget gaps.
Despite Treasury Secretary Scott Bessent dismissing agencies as lagging indicators, the downgrade has clearly reset risk premiums across long-dated Treasuries. Investors now face a tug-of-war between growth support from Fed rate decisions and the drag of larger deficits as debt ceiling talks loom.
Why It Matters: Rising long-term yields and a shaken credit standing raise borrowing costs for issuers and may force portfolio reallocations toward shorter-duration or higher-yield assets.
Investors will be watching Fed minutes and congressional debt-ceiling negotiations in the coming weeks for fresh clues on fiscal and monetary trajectories.
This article first appeared on GuruFocus.