By a bold beard
New York (Reuters) -The US sovereign downgrade has exacerbated investors' concerns about an upcoming debt time bomb that could trigger a bond market vigilantes that want to see more financial restraint from Washington.
The Sovereign Pristine's Sovereign Credit Rating Agency broke America by one RC on Friday, the last of the major graduation agencies to downgrade the country, citing concerns about the nation's $ 36 trillion debt pile.
The move came as Republicans who control the House of Representatives and Parliament seeks to approve a sweeping package of tax cuts, spending hiking and reductions in safety nets, which could add trillions to the US debt pile. Uncertainty about the final shape of the so -called “Big Bill” has investors at the forefront even as optimism emerges over trade. The Bill failed to clear a key barrier on Friday even as US President Donald Trump called for unity around the legislation.
“The bond market has been keeping a sharp eye on what is happening in Washington this year in particular,” said Carol Schleif, chief market strategist on BMO private wealth, who said that Moody's downgrading could make investors more careful.
“As Congress argues the 'big, beautiful bill' the Bond Vigilantes will keep a sharp eye on making them a financially responsible line,” he said, referring to bond investors who punish poor policy by making it too expensive for governments to borrow.
The downgrade from Moody's, which follows similar movements from Fitch in 2023 and Standard & Poor's in 2011, “will eventually lead to higher public and private sector borrowing costs in the United States,” said Spencer Hakimian, founder of Tolou Capital Management in New York.
However, the score cut was unlikely to trigger compulsory sales of funds that can only invest in the highest scale securities, said Gennadiy Goldberg, head of the US Rates Strategy at TD Securities, as most funds amend guidelines after S&P downgrading. “But we expect it to refocus market coverage on fiscal policy and the Bill currently being discussed in Congress,” said Goldberg.
Focus on a thousand
One question is how much push back will be in Congress as to whether financial principles are being sacrificed, said Scott Clemons, Chief Strategist Investment in Brown Harriman Brothers, adding that a Bill that shows that expenditure may be incentive to add exposure to exposure to long -standing treasures.
The committee for a responsible federal budget, Nonpartisan think tank, estimates that the Bill could add about $ 3.3 trillion to the country's debt by 2034 or approximately $ 5.2 trillion if policy makers extend temporary provisions.
Moody's on Friday said that successive administrations had failed to reverse the trend of higher fiscal deficiencies and interest costs, and did not believe that there will be reductions in deficiencies in deficits arising from financial proposals being considered.
Anxiety appears in market pricing. A recent increase in the 10 -year Treasury term premium – a measure of demanding investors returning for the risk of holding dated debt – partly signals basic financial concern in the market, said Anthony Woodside, head of the stable income strategy in America America's legal and general investment management strategy. Woodside said the market “not assigned much credibility” to the deficiency that is brought down in a material way.
Treasury Secretary Scott Bessent has said the administration focuses on including a 10 year benchmark product. The product, last seen at 4.44%, is about 17 base points below where it was before Trump became office in January.
“You could certainly see a product response to a quite significant increase in the deficit at a time when we are already running quite significant flaws,” said Garrett Melson, a portfolio strategist with Natixis Investment Managers Solutions.
A spokesman for the White House rejected concerns about the Bill. “The experts are wrong, just as they related to the impact of Trump's tariffs, which have led to investments drilled, record job growth, and no inflation,” Harrison Fields, a special assistant to the president and chief deputy press secretary, said in a statement.
The White House characterized the moody downgrading as political. White House Communications Director Steven Cheung responded to the move via social media mail on Friday, noting Moody's economist, Mark Zandi, and called him a political opponent to Trump. Zandi, a chief economist at Moody's Analytics, a separate entity of the rating agency, refused to comment.
Some in the market believe that the fiscal prospects will improve with the tax package compared to earlier expectations, due to tariff revenue and offset spending. Barclays now estimates that the cost of the Bill is increasing deficiencies by $ 2 trillion over the next 10 years compared to expectations of around $ 3.8 trillion before Trump becomes his job.
X Factor?
Emergency mounts as key deadlines method. House spokesman Mike Johnson has said he wants his chamber to pass the Bill before the US Memorial Day holiday on May 26, while Bessent urged legislators to raise the federal government debt limit by mid -July.
The US Government reached its statutory borrowing limit in January and began to employ “remarkable measures” to keep it from breaking the cap. Bessent has indicated that the Government could hit the as it is called – when it runs out of cash to fulfill all its obligations – by August.
The nervousness of investors around the debt limit has begun to appear. The average product on Treasury Bills due in August is higher than the product of adjacent maturity.
Although there is a broad agreement within the Republican Party to extend Trump's 2017 tax cuts, there is a split on how to achieve spending cuts that would help make up for revenue loss.
The room for moving on spending cuts is limited. Mandatory expenditure, including on social welfare programs that Trump has promised not to touch, accounted for a vast majority of total budgetary expenditure last year.
A viable political fiscal package is likely to lead to wider shortcomings in the near term, while at the same time it will not provide a meaningful fiscal boost to the economy, Michael Zezas, a strategist at Morgan Stanley, said in a note announced last week.
Anne Walsh, Chief Investment Officer at Guggenheim Partners Investment Management, said without a real process in Washington, which is aimed at replacing spending levels significantly, that meaningful improvement in the US financial route is unlikely.
“This is an unsustainable course that we are on,” he said.
(Reporting by Davide Barbusia; Additional Reports by Carolina Mandl; Edited by Megan Davies and Driver Anna)
