Moody’s Investors Service downgraded the United States’ sovereign credit rating on Friday, citing rising concerns over the nation’s growing $36 trillion debt burden.

The credit rating agency lowered the US government’s long-standing rating by one notch to “Aa1” from “Aaa” and revised its outlook to “stable” from “negative.” Moody’s had maintained the United States’ top-tier “Aaa” rating since 1919 and was the last of the three major credit rating agencies to downgrade it.

The decision follows Moody’s shift in 2023 to a negative outlook due to persistently high fiscal deficits and increasing interest payments.

“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said on Friday.

Since returning to the White House on January 20, President Donald Trump has pledged to balance the federal budget. Treasury Secretary Scott Bessent has repeatedly emphasized the administration’s goal of lowering government borrowing costs. However, efforts to increase revenues and rein in spending have yet to convince investors, according to a Reuters report.

Moody’s noted that the fiscal proposals currently under discussion are unlikely to deliver a sustained, multi-year reduction in deficits. The agency projects that the federal debt burden will rise to approximately 134% of GDP by 2035, up from an estimated 98% in 2024.

This downgrade follows a similar move by Fitch Ratings in August 2023, which also lowered the US sovereign rating by one notch. Fitch cited anticipated fiscal deterioration and recurring last-minute debt ceiling negotiations that pose risks to the government’s ability to meet its financial obligations.

Standard & Poor’s was the first among the major rating agencies to strip the United States of its “AAA” rating in 2011, following a protracted debt ceiling standoff.

US Markets Reaction

Moody’s downgrade, which came after market close, sent yields on Treasury bonds higher.

Yields on US 2-year Treasuries accelerated a rise, and were up 2 basis points (bps) late on Friday at 3.993%. They climbed to a session peak of 4.012%. Yields on benchmark 10-year notes reversed the earlier drop and rose as high as 4.499%.

(With inputs from Reuters)

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