US Stocks Drop After Credit Downgrade – Asia Market Wrap

US equity-index futures dropped and Treasuries yield curve steepened after Moody’s Ratings stripped the US government of its top credit rating, citing a ballooning budget deficit it said showed little sign of narrowing.

Contracts for the S&P 500 dropped 1.1% and those for the Nasdaq 100 declined 1.3% as the ratings were cut one level to AA1 from AAA Friday. Longer-dated Treasury yields rose to touch the psychological 5% level. A gauge of the dollar weakened 0.2%. Asian stock indexes fell even as China’s industrial output expanded faster than expected in April. Bullion rose 0.4% with appetite for the haven asset boosted by mounting concerns about the US economic outlook and budget deficit.

The downgrade risks reinforcing Wall Street’s growing worries over the US sovereign bond market and revives the ‘Sell America’ concerns triggered by President Donald Trump’s trade war. The rating cut comes as Capitol Hill debates even more unfunded tax cuts and the economy looks set to slow as Trump upends long-established partnerships and re-negotiates trade deals.

Moody’s joined Fitch Ratings and S&P Global Ratings in grading the world’s biggest economy below the top, triple-A position. The one- notch cut comes more than a year after Moody’s changed its outlook on the US rating to negative. The credit assessor now has a stable outlook. While Moody’s recognized the US’ significant economic and financial strengths, it no longer fully counterbalances the decline in fiscal metrics, the ratings company said. Treasury Secretary Scott Bessent downplayed concerns over file US’s government debt and the inflationary impact of tariffs, saying the Trump administration is determined to lower federal spending and grow the economy.

On Monday, 10-year Treasury yields climbed four basis points to 4.52% and their 30-year equivalents rose about six basis points to 5.00%. A move through 5% for the longer-dated benchmark would put levels last seen in 2023 in play – they peaked that year at 5.18%, the highest since 2007. Shorter-dated yields are more sensitive to the path of US interest rates, with their longer-maturity counterparts influenced by expectations about the trajectory of America’s massive debt pile.