Moody’s Downgrade Spurs Treasury Sell-Off, Pushing Rates Toward New Highs

Investors dumped long-term Treasuries after Moody’s stripped the US of its last triple-A rating, sending the 30-year yield briefly above 5 percent and wiping billions from bond values. Analysts warn the shift raises borrowing costs across the board—auto loans, credit cards, mortgages—and could chill corporate expansion just as House Republicans advance fresh tax cuts that would deepen the $36 trillion federal debt.

Finance experts say higher yields reflect greater perceived risk: lenders will demand steeper payments to hold government paper, which then ripples into consumer rates. The downgrade arrives only months after a similar move by Fitch and in the wake of market-jolting “Liberation Day” tariffs. Though stocks largely shrugged off Monday’s bond rout, strategists caution that sustained 5 percent long bonds would sap growth and swell Washington’s interest bill, creating a self-reinforcing debt spiral.

Whether yields stay elevated hinges on two fronts: Washington’s willingness to curb deficits and the path of inflation. Previous downgrades in 2011 and 2023 failed to derail the economy, but Deutsche Bank notes this is the first time all three major agencies have relegated US debt below prime. For households, the message is simple: expect pricier credit ahead—and for policymakers, the clock is ticking before financing America’s obligations becomes the biggest line item in the budget.