For a short time, the financial markets reacted violently to the downgrading of the United States. Even if the situation should calm down again: distrust of the USA has increased.
Moody’s had taken a lot more time than her competitors: Standard & Poor’s had already withdrawn its top grade in 2011, Fitch followed in 2023. On Friday evening, Moody’s last of the three major rating agencies down to “AAA” on “AA1”.
The New York agency justified the step with the fact that the US financial situation would probably continue to deteriorate compared to earlier times and other highly rated states. It can be seen that the United States is economically and financially strong – but this is no longer completely the same as the regression in the state finances.
On Sunday evening, a congress committee had given the green light for President Donald Trump’s tax reduction plans. According to expert estimates, this could increase the US debt, which is currently almost $ 37 trillion, by another three to five trillion in the next ten years.
Bond market in turmoil
The financial markets reacted violently. While the dollar and the New York stock exchanges initially came under pressure on Monday, the courses for 30-year US state bonds broke up, which made their return to up to 5.037 percent. This is the highest level since November 2023, a little more than the level as a result of the “customs shock” from the beginning of April.
If it remains at these levels, the US financing costs increase. In the inevitable new debt admission, the state has to offer investors more than before in order to accept capital on the bond market. Before the “customs shock”, the 30-year bonds had temporarily brought investors even less than 4.4 percent.
Continued good grades for US debt
It should be emphasized that the creditworthiness of the United States is still very positively assessed. The Note AA1 also certifies high quality and a very low risk of failure to the US debts. “With AA1, Moody’s US rating is now on par with that of Finland and Austria and under that of countries like Germany, Australia, Canada or Switzerland,” explains Benoit Anne, bond expert at MfS Investment Management.
Many experts had also already expected that Moody’s will also follow up in view of the latest faults. You also expect that the bond markets should calm down a little again.
Rating agencies rate the creditworthiness of companies, banks and states. The most influential rating agencies are Standard & Poor’s (S&P), Moody’s and Fitch.
The worse you judge the creditworthiness of a market participant, the more expensive and difficult it becomes for this to get money. Not only banks are based on the rating, but also institutional investors.
The agencies use letter codes for their classifications. For example, the scale begins at Standard & Poor’s and Fitch with the top grade AAA. This is followed by AA, A, BBB, BB, B, CCC, CC, C. Most levels can be divided even more finely with plus and minus signs. The speculative area begins from BB+, which is also called “Ramsch”. D means that the debtor has occurred.
Critics complain that it often remains unclear what proportion of ratings mathematics and what opinion is. Rating agencies were criticized in the financial crisis: Because they advertised ramsch papers as a safe investment, they were given a complicity in the crisis.
Trust in the USA shaken sustainably
Nevertheless, many observers point out that the trust of the financial markets is sustainably shaken by the recent faults. The news is another piece of the puzzle in an already cracked trust in the US administration, says capital market strategist Jürgen Molnar from the Robomarkets Handelshaus.
“The long-standing ‘US exception bonus’, which was based on a strong consumer demand, a dynamic labor market and a supportive fiscal policy, is re-evaluated,” explains BLEINA ORUCI, economist for the USA at T. Rowe Price.
Financial markets more susceptible to shocks
The distrust of the financial markets had already reached the stability and reliability of the United States in view of the erratic politics from Washington, barely known heights. “Today, the US state bond market can no longer react as stable in a shock as before,” Benoit Anne summarizes the situation.
The situation is likely to relax again when the United States comes from more stable economic data again. However, investors should be prepared that the financial markets will react much more sensitive to new disturbances from the United States in the future than before.
