Downgrade of U.S. Credit Rating Stokes “Sell America” Sentiment Amid Deficit and Trade War Fears
Comments from the Trading Desk on 5-19-2025
Moody’s downgrade of the U.S. credit rating, stripping it of its final triple-A status, reflects growing global concern over the nation’s worsening fiscal outlook. The rating was cut to Aa1, putting the U.S. on par with countries like Austria and Finland, and was driven by persistent deficits and rising interest costs. This development coincides with the advancement of a tax-and-spending bill projected to increase the deficit by $3 trillion over the next decade.
Markets reacted immediately. Treasurys sold off, pushing 10-year and 30-year yields to multi-year highs, while the WSJ Dollar Index fell 0.6%. Investors appear to be rotating into a “Sell America” stance—pressuring bonds, the dollar, and possibly equities—as confidence in U.S. fiscal discipline erodes.
While Fitch and S&P had previously downgraded the U.S., Moody’s move is hitting harder amid a fragile global economy and escalating trade tensions. Inflation, tariff uncertainty, and political dysfunction are adding to investor discomfort. For many, the downgrade signals that U.S. assets can no longer be viewed as the unquestioned global safe haven.
The Federal Reserve has already paused rate hikes, citing policy uncertainty. But rising debt-servicing costs, if yields continue to climb, may limit the Fed’s flexibility—tightening financial conditions while inflation remains sticky.
The Stipelis proprietary bond market indicator is now in a confirmed bear market and trending toward a retest of recent lows, suggesting the 10-year yield could reach 4.53%. This technical setup aligns with broader market concerns and indicates ongoing pressure in fixed income markets.
Stephen coleman – Head market strategist