Investors were treated to yet another delightful Monday morning punch in the face. US assets came under renewed pressure — this time not from tariffs, but from something more existential: America’s mountain of debt.
In a move that shocked no one paying even a modicum of attention, Moody’s finally downgraded the United States’ credit rating from its previously untouchable Aaa status to a slightly less celestial Aa1. This long-overdue slap came late Friday, with the agency gently pointing out that successive US administrations and lawmakers have been spending like sailors on shore leave, with zero inclination to tighten their belts.

In Asia, investors wasted no time digesting the downgrade. Long-dated Treasuries slipped, equity futures sagged, and the dollar stumbled — presumably wondering why anyone still treats it as a safe haven when even its own government has to beg for a credit extension.
Yields on 10-year Treasuries jumped to around 4.50%, and their 30-year cousins flirted with the ominous 5% mark — territory not seen since the financial pre-apocalypse of 2007. Should they climb further, the US risks reliving its old mortgage crisis muscle memory, only with much more debt and much less credibility.

The dollar index is near April lows, bruised by growing scepticism. Understandably, traders are the most bearish on the greenback in five years—and that’s saying something.
Previously, market jitters were all about Trump’s trade tariffs. But now that the president has temporarily shelved his sabre and extended an olive branch to China, all eyes have shifted to America’s debt trajectory, which appears to be crumbling under its own weight, much like its infrastructure.

ECB President Christine Lagarde chimed in with typical elegance, suggesting the dollar’s decline is “counterintuitive” but merely reflects “uncertainty and a loss of confidence in US policymaking.” This is a gentle way of saying, “What on earth are they doing?”
Meanwhile, Treasury Secretary Scott Bessent dismissed concerns with the rhetorical equivalent of a shrug, labelling Moody’s a “lagging indicator,” which is Washington-speak for “please stop paying attention to the red flags.”

Let’s not forget the numbers. The US is facing a federal deficit approaching $2 trillion annually—more than 6% of GDP—and is on track to exceed World War II-level debt by 2029. By 2035, Moody’s expects the deficit to swell to 9% of GDP, fuelled by rising interest payments, ballooning social programmes, and a revenue stream best described as “leaky.”
Naturally, this hasn’t deterred Congress from devising another multi-trillion-dollar tax-and-spend package, estimated to cost upwards of $3.8 trillion-or more, depending on how many “temporary” measures become permanent fixtures in the national budget circus.

At the exact moment Moody’s was downgrading the US, Treasury data revealed China had quietly trimmed its holdings of US debt. Cue panic? Not quite. Former Treasury official Brad Setser noted this was more of a “duration adjustment” than a full-scale exodus from the dollar, which is the kindest way to describe a nervous shuffle toward the exit.
Still, foreign appetite for Treasuries remained intact in March. But as the US sails deeper into fiscal fantasyland, one wonders how long global investors will keep playing along.

All in all, Moody’s downgrade tells us what we already knew but politely ignored: America’s fiscal house is not in order, and the markets are starting to notice. Expect more volatility, finger-pointing, and magical thinking out of Washington — because when in doubt, blame the rating agencies.