Moody’s credit downgrade is understandable, ‘but the time is questionable,’ says Bob Lang, founder and chief options analyst at Explosive Options.
Yields on U.S. Treasury securities soared on May 19 after Moody’s downgraded the United States’s long-term credit rating.
Treasury yields were up across the board, with the benchmark 10-year yield firming above 4.52 percent.
The 20- and 30-year Treasury yields reached 5 percent for the first time since the middle of January.
Treasury yields and bond prices have an inverse relationship: Higher demand drives bond prices up and yields down, while lower demand results in falling prices and rising yields.
Long-term Treasury yields are crucial gauges for consumer borrowing costs, as loans for automobiles and homes track these interest rates.
Financial markets responded to Moody’s May 16 decision to lower the U.S. credit rating from Aaa—the highest possible score—to Aa1. Moody’s had been the only firm to maintain the United States’s high rating, and now it joins Fitch and Standard & Poor’s.
The rating agency pointed to the federal government’s deteriorating fiscal health, referencing burdensome debt-servicing costs and the high cost of rolling over current debt in a high-rate environment.
“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” Moody’s analysts said in a statement.
Bob Lang, the founder and chief options analyst at Explosive Options, says the lower rating was understandable, though “the time is questionable.”
“But it is what it is,” Lang said in a note emailed to The Epoch Times.
The White House shrugged off the single-notch downgrade.
“I think that Moody’s is a lagging indicator,” said Treasury Secretary Scott Bessent in an interview with NBC’s ”Meet the Press“ on May 18. “I think that’s what everyone thinks of credit agencies.”
Bessent attributed the Moody’s move to a reflection of the previous administration’s spending policies.
“Just like [Transportation Secretary] Sean Duffy said with our air traffic control system, we didn’t get here in the past 100 days,” Bessent said.
“It’s the Biden administration and the spending that we have seen over the past four years.
“Interest rates are on the move and rising with the debt downgrade, though the panic seen in the bond market is not quite palpable.”
By Andrew Moran
