New York - The cost of U.S. Treasury bonds has surpassed 5% for the first time since November 2023, spurred by a recent credit downgrade from Moody's Investors Service.

The rating agency downgraded the United States from its top-tier AAA status, citing persistent high deficits as a key concern.

Treasury Secretary Scott Bessent dismissed the downgrade as an 'obsolete indicator,' questioning its relevance in the current economic climate.

The reaction from financial markets was swift, with the yield on 30-year Treasury bonds peaking at 5.04% before retracting slightly to 4.95%.

The news contributed to a negative opening on Wall Street, where investors began selling equities, bonds, and the U.S. dollar amid mounting worries about the nation’s debt profile.

While the Dow Jones Industrial Average initially dropped over 300 points, the S&P 500 and Nasdaq eventually recovered to positive territory throughout the trading day, reflecting ongoing uncertainty about the future economic landscape.

Historically, the United States has maintained a significant deficit due to its economic strength and the essential role of the dollar and U.S. debt in the global financial system.

However, current analyses question the sustainability of this status, especially in light of the erratic economic policies under the Trump administration.

Despite a temporary truce in the U.S.-China trade war, concerns persist about potential escalating tensions.

The Federal Reserve is currently exercising caution in its monetary policy, refraining from pursuing interest rate cuts as urged by President Trump.

Moody’s became the latest credit rating agency to downgrade the U.S., joining Fitch and S&P Global Ratings.

The agency indicated that a decade of inaction from successive administrations and Congress regarding fiscal management has led to a concerning trend of increasing budget deficits.

The current national debt now stands at $36 trillion.

Bessent acknowledged the severity of these concerns, asserting that the government is willing to cut spending to promote economic growth.

However, Moody’s downgrade signifies that U.S. debt is not officially deemed 'impeccable' by any of the leading credit rating agencies.

According to Moody’s, the deficit is projected to increase to 9% of GDP over the next decade from the 6.4% reached last year.

Such levels of deficit have historically been associated with global conflicts, like World War II, the 2008 financial crisis, and the COVID-19 pandemic shutdown.

The downgrade could disrupt the relative stability that markets had achieved following a three-month pause in trade tariffs between the U.S. and China.

Economist George Saravelos noted that diminishing appetite for U.S. assets and the inflexibility of the country’s fiscal process contribute to a growing unease in the market.