The myth of the AAA rating of US Treasuries has shattered: it's not the end of the world, but a warning, and a new beginning.

The United States lost its last "AAA" rating, causing global attention. What market interpretation and structural risks are revealed behind Moody's downgrading but a stable outlook? This article provides an in-depth analysis of the true meaning and subsequent implications of rating adjustments. (Synopsis: 30-year U.S. Treasury yields soar above 5%!) The United States loses all 3A credit reviews, investors should be nervous) (Background added: rich dad warns "the end of the world is coming": no one buys the US bond auction, bitcoin will rush $1 million) Preface Recently, Moody's became the last of the three major rating agencies to kick the United States out of the "AAA club". The downgrade did not come as a surprise to the market, and what is more intriguing is that Moody's downgraded its rating while Moody's downgraded its outlook to neutral. On the one hand, sovereign credit is downgraded, and on the other hand, the risk outlook is stabilizing, what is the signal behind this? Here's the question: How can a beautiful country with broken fiscal deficits, political bickering, and almost an annual government shutdown show keep rating agencies hopeful? The dust has settled on the rating downgrade, has the US debt alarm been paralyzed by the market? On May 16, 2025, Moody's Ratings downgraded the U.S. sovereign credit rating to AA1 from its highest grade, AAA, and revised its outlook from negative to stable. This move officially loses the last AAA rating in the United States, means that the three major rating agencies Standard & Poor's, Fitch and Moody's no longer list the United States as the most credible country, and also reflects the deep fiscal challenges facing the United States. The core reason for this downgrade is that the ratio of US government debt and interest payments has continued to rise to significantly higher levels than comparable rated sovereigns over the past decade, and successive administrations and Congress have failed to agree on effective measures to reverse the trend of large annual fiscal deficits and rising interest costs. But overall, the marginal impact of the rating adjustment is diminishing, not only because it is not the first time that the rating has been downgraded ( because as early as August 2011, Standard & Poor's downgraded the US rating from AAA to AA1, and Fitch made the same adjustment ) in August 2023, and the content of this Moody's downgrade does not give a view that the market has not yet realized, and the negative impact on the market seems to be limited in the short term. The following is an analysis with reference to Moody's for the downgrade of the US rating, the original article can be read: Core factors of the downgrade Sharp increase in debt burden: The trend of the US federal debt, which has risen sharply over the past decade due to persistent fiscal deficits, has been the main driver of Moody's downgrade. According to the latest projections of the Congressional Budget Office, the federal budget deficit will reach $1.9 trillion in 2025, or about 6.2% of GDP, and by 2035, the adjusted deficit will grow to $2.7 trillion, or 6.1% of GDP. This figure is well above the average deficit of 3.8% over the past 50 years, indicating a serious deterioration in the US fiscal position. The federal debt-to-GDP ratio is expected to rise from 100% in 2025 to 118% in 2035, surpassing the all-time high of 106% set in 1946. Moody's predicts that if the provisions of the Tax and Jobs Act of 2017 (TCJA) are extended, the federal debt burden could rise to about 134% of GDP over the next decade, compared with 98% in 2024, a debt trajectory that reflects the structural fiscal challenges facing the United States. On the other hand, mandatory spending in the United States will significantly compress fiscal space, and such spending is expected to rise to 78% of total government spending in 2035, from 73% in 2024, further weakening fiscal flexibility. Sharp Rise in Interest Burden: The surge in interest costs is another key factor in Moody's downgrade. Since 2020, U.S. net interest payments have nearly doubled from $345 billion to $882 billion in 2024. Moody's forecasts that interest payments will account for 30% of government revenue by 2035, up from 18% in 2024 and 9% in 2021, indicating that the sustainability of debt financing is deteriorating. Figure ( I ): U.S. Net Interest Costs Over the Past 10 Years (Source: Department of the Treasury) In addition, Moody's noted that even as global funds remain in high demand for U.S. Treasuries, since 2021 Rising yields since the beginning of the year have significantly affected debt affordability. In 2024, the interest expense of the general U.S. government ( covers federal, state, and local governments ) as a percentage of revenue, which is well above the average of 1.6% in both AAA rated countries. There are currently 11 countries with Moody's top ratings: Australia, Canada, Denmark, Germany, Luxembourg, the Netherlands, New Zealand, Norway, Singapore, Sweden and Switzerland. In short, the proportion of government debt and interest expenses in the United States has continued to rise over the past decade, and the level has been significantly higher than that of other sovereign countries with the same rating, which is the main reason for this downgrade. From negative to stable: structural advantages remain Moody's downgraded its US sovereign credit rating from AAA to AA1, but it also revised its outlook from negative to stable. It's like the teacher gives you a low score while patting you on the shoulder and saying, "Not bad~ You have a lot of potential." The implication seems to be telling the market: "Although the short-term fiscal pressure is not small, the overall health of the United States is still strong." Why does Moody's judge that way? Their view is based primarily on several long-term structural advantages: First, the U.S. economy is large enough and resilient. In 2024, the per capita GDP of the United States will reach $85,812, showing strong economic strength and spending power. Not to mention that the United States is a global leader in scientific and technological innovation, research and development, and talent cultivation, which means that its future economic growth potential is still very strong, even if there is pressure on interest rates and debt in the short term, but the growth momentum is still sustainable in the long term. Second, the dollar's status as a global reserve currency provides unprecedented support for U.S. sovereign credit. Although the voice of de-dollarization has heated up in recent years and the share of the dollar in foreign exchange reserves has actually begun to decline, the dollar still dominates global foreign exchange reserves as of Q4 2024, accounting for 57.4% of global official foreign exchange reserves. On the other hand, many international trade and financial transactions are denominated in dollars, which allows the United States to continue to issue Treasuries at low cost without incurring too high risk premiums. Compared to other sovereigns, the United States is better able to absorb high fiscal deficits and debt, and remains a provider of safe-haven assets in times of market turmoil, significantly mitigating the immediate impact of its fiscal deterioration on borrowing costs. Third, the Fed's independence and flexibility of policy tools are also key stabilizing factors in Moody's assessment. Despite the challenges of policy communication and forward guidance in recent years, the US Federal Reserve remains one of the most credible and practical institutions among global central banks. Whether it's fighting inflation, providing market liquidity, or even maintaining his data...