Daily Newsletter 5/21/25
The combination of the Moody’s downgrade and the fiscal uncertainty surrounding the tax bill has led to higher Treasury yields, a cautious tone in equity markets, and increased volatility.
Moody’s downgrade of the US credit rating from Aaa to Aa1 had an immediate and noticeable impact on US markets. Treasury yields spiked, with the 30-year yield briefly surpassing 5% and the 10-year yield rising above 4.5%—levels not seen since late 2023. This reflects investors demanding higher returns for holding US government debt, as the downgrade signals increased credit risk due to rising deficits and debt. Bond prices fell as a result, since yields and prices move in opposite directions.
The current US tax bill, known as the "One Big, Beautiful Bill," is a major tax cut and spending proposal backed by President Donald Trump. As of May 21, 2025, the bill has not yet been passed or signed into law.
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