The move by Moody’s essentially warns investors globally not to lend to the US government at such low interest rates, and the yield on the 10-year Treasury briefly jumped above 4.55 per cent early Monday morning. That number shows how much in interest the US government has to pay in order to borrow money for 10 years, and it was up sharply from 4.43 per cent late Friday. But it later regressed to 4.45 per cent as more calm returned to the market.
The yield on a 30-year Treasury bond briefly leaped above 5 per cent before likewise receding, up from less than 4 per cent in September.
The downgrade by Moody’s comes ahead of a tense period for Washington, where it’s set to debate potential cuts in tax rates that could suck away more revenue, as well as the nation’s limit on how much it can borrow.
If Washington has to pay more in interest to borrow cash to pay its bills, that could filter out and cause interest rates to rise for US households and businesses too, in everything from mortgage rates to auto loan rates to credit cards. That in turn could slow the economy.
The downgrade adds to a long list of concerns that have already weighed on the market. Chief among them is President Donald Trump’s trade war, which itself has forced investors globally to question whether the US bond market and the US dollar still deserve their reputations as some of the safest places to park cash during a crisis.
The US economy seems to be holding up OK so far despite the pressures of tariffs, and hopes are high that Trump will eventually relent on his tariffs after striking trade deals with other countries. That’s a major reason the S&P 500 has rallied back within 3 per cent of its all-time high after falling roughly 20 per cent below that market last month.
But big companies have been warning recently they’re uncertain about the future. Walmart, for example, said recently that it will likely have to raise prices because of tariffs. That caused Trump over the weekend to criticise Walmart and demand it and China “eat the tariffs.”
Walmart’s stock slipped 0.1 per cent Monday.
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Other big retailers on the schedule to report their latest quarterly results this upcoming week include Target, Home Depot, Lowe’s and TJX Cos.
On the winning end of Wall Street was Novavax, which rose 15 per cent after it said US regulators approved its COVID-19 vaccine under some conditions. The approval triggered a $175 million milestone payment under the company’s collaboration agreement with Sanofi.
All told, the S&P 500 rose 5.22 points to 5,963.60. The Dow Jones Industrial Average added 137.33 to 42,792.07, and the Nasdaq composite rose 4.36 to 19,215.46.
In stock markets abroad, indexes were mixed amid mostly modest movements across Europe and Asia.
Indexes were close to flat in both Shanghai and Hong Kong after the Chinese government said retail sales rose less in April than expected. Growth in industrial output slowed to 6.1 per cent year-on-year from 7.7 per cent in March.
In the foreign currency markets, the value of the US dollar fell against everything from the euro to the Australian dollar.
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