US stocks fell sharply on Monday after Moody’s downgraded the country’s credit rating, triggering a surge in Treasury yields and renewed pressure on equity markets.
The Dow Jones Industrial Average declined by 130 points, or 0.3%. The S&P 500 dropped 0.58%, while the Nasdaq Composite led the losses with a 0.74% slide.
Moody’s cut the US credit rating by one notch from Aaa to Aa1 on Friday, citing growing fiscal deficits and the challenges of refinancing debt amid elevated interest rates.
The move brings Moody’s in line with other major rating agencies that had already lowered the US from their top-tier ratings.
In August 2023, Fitch Ratings downgraded the United States’ long-term credit rating from AAA to AA+, pointing to persistent political brinkmanship over the debt ceiling and growing fiscal instability.
This move followed S&P’s earlier downgrade in 2011, when it became the first major agency to cut the US rating from AAA to AA+.
The downgrade weighed heavily on bond prices, pushing yields higher just as markets remain sensitive to economic headwinds, including fallout from President Donald Trump’s tariff policies.
Rising yields further dampened sentiment, especially in rate-sensitive sectors like technology.
Shares of Palantir fell 3%, Tesla dropped 4%, and Nvidia lost 2%, as investors pulled back from growth stocks most vulnerable to economic slowdown and risk aversion.
The market reversal followed a strong week on Wall Street, which had seen optimism return after the US and China reached a temporary agreement to roll back tariffs.
The Nasdaq Composite had surged over 7% last week, the S&P 500 gained more than 5% in a five-day rally, and the Dow climbed over 3%.
Bond yields jump after downgrade
US Treasury yields spiked on Monday after Moody’s downgraded the country’s credit rating, prompting a broad selloff in government bonds and pushing rates to levels that have recently pressured financial markets.
The 30-year Treasury yield jumped 13 basis points to 5.03%, while the 10-year rose 11 basis points to 4.552%.
The 2-year yield climbed 4 basis points, reaching 4.021%.
Investor anxiety intensified after Moody’s cut the US credit rating from Aaa to Aa1 on Friday, citing the growing fiscal burden and elevated costs of servicing 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,” the agency said in its statement.
Moody’s had maintained a top-tier “country ceiling rating” of Aaa for the US since 1949.
The move now aligns it with the other major credit rating agencies, which had already placed the US at their respective second-highest ratings.
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