Greetings, dear readers,
I just got back from a whirlwind trip to Switzerland — a blend of vacation and business — and while the Alpine air was refreshing, the global financial headlines were anything but calm.
Even as I enjoyed the sights, I found myself trading and keeping a close eye on the markets, and this week, I want to share some crucial insights that emerged while I was away.
In particular, we need to talk about the recent Moody’s downgrade of the US credit rating, the surge in US Treasury yields, and what these developments signal for investors around the world.
If you enjoy this kind of market analysis, make sure to subscribe to my YouTube channel at StreetWise Economics here : https://tinyurl.com/5ydrzdxb for more regular updates and practical trading tips.
And for those interested in personalised guidance, you can book 1:1 coaching sessions with me at www.streetwiseeconomics.com. Disclaimer: This article is for informational purposes only and not investing advice. I simply share what works for me and my approach to the markets.
Last Friday, Moody’s, the last of the three major credit rating agencies to hold out, downgraded the US sovereign credit rating from the top-tier Aaa to Aa1.
The rationale was clear: the US federal deficit is ballooning, and efforts to rein in spending or increase revenue seem stalled in Washington.
- Mthuli dives into Zanu PF politics headlong
- Driver ‘seriously injured’ after being run over three times by own car
- HealthTalk: Zim has potential to deliver quality health
- Switzerland helps to bring about climate-resilient agriculture in Zim
Keep Reading
As a result, the US government is now seen as a slightly bigger credit risk, and that has immediate, real-world consequences.
As per Reuters report, the downgrade came at a time when political negotiations are pushing for permanent tax cuts, which could add trillions more to the national debt over the next decade.
The US is now carrying over US$36 trillion in debt, and the prospect of even more borrowing has spooked both domestic and international investors.
The most immediate effect of the downgrade was seen in the bond markets. According to Reuters, yields on the 10-year and 30-year US treasury bonds surged, with the 30-year yield crossing above 5% and the 10-year yield moving past 4,5% — levels not seen in years.
Remember, bond prices and yields move in opposite directions, so this spike in yields reflects a selloff in treasuries as investors demand higher returns for what they now see as increased risk.
But the story is more complex than just a reaction to Moody’s. Several forces are at play:
lFiscal concerns: The US government’s rising deficits and debt load mean more Treasury bonds will need to be issued, increasing supply and putting downward pressure on prices (and upward pressure on yields).
Policy uncertainty: Recent tariff escalations and political brinkmanship have added to market volatility, making investors nervous about the US’s fiscal and economic outlook.
Inflation and Fed policy: The Federal Reserve is now expected to be more cautious about cutting rates, as higher tariffs and fiscal spending could stoke inflation. Fed officials, including chair Jerome Powell, have warned that these dynamics complicate efforts to lower rates.
Market liquidity: Episodes of volatility have reduced liquidity in the Treasury market, making price swings more pronounced. When leveraged traders are forced to sell to cover losses, it can create a feedback loop of rising yields and falling prices.
The US Treasury market is the cornerstone of the global financial system. It sets the benchmark for risk-free rates, influences everything from mortgage rates to corporate borrowing costs, and is a key channel for the Federal Reserve’s monetary policy. When yields rise sharply, the effects ripple across the world.
Higher Treasury yields mean higher interest rates for consumers. According to a CNBC report, the average 30-year fixed mortgage rate is now approaching 7%, and rates on auto loans and credit cards are also climbing.
As borrowing costs rise, it becomes more expensive for households and businesses to finance purchases and investments, which can slow economic growth.
The US dollar has weakened in response to the downgrade and fiscal concerns, while stock markets in the US, Europe, and Asia have all experienced heightened volatility.
International investors may now demand higher premiums to hold US debt, which could further increase borrowing costs for the US government and, by extension, for everyone else.
For those of us actively trading or managing portfolios, this environment demands caution but also presents opportunities.
In my own trading, I’ve maintained a long-term portfolio focused on high-quality names like JPMorgan, Apple, Booking Holdings, MercadoLibre, and Amazon, while also keeping a healthy cash position.
This has allowed me to weather volatility and take advantage of short-term trading opportunities — even while traveling in Switzerland!
I’ve shared more about my trading experiences during the trip on my YouTube channel, so check out those videos if you want a behind-the-scenes look at how I navigated these markets.
Moody’s downgrade is more than just a symbolic blow to US prestige. It signals that the era of unlimited, cheap borrowing for the US government may be ending.
With debt levels at historic highs and no clear plan to address the fiscal imbalance, the US may find itself with less room to manoeuvre in future crises.
This could mean higher interest rates for years to come, and greater vulnerability to shocks.
For investors, the message is clear: risk is rising, and the old assumptions about US Treasuries as the ultimate “safe haven” asset are being tested.
While Treasuries are still among the safest assets globally, the premium investors demand is increasing, and that changes the calculus for everyone from central banks to individual savers.
How should investors respond?
Every investor’s situation is unique, but here are some general principles that I’m following:
Diversify: Don’t put all your eggs in one basket. A mix of equities, cash and high-quality bonds can help manage risk.
Stay liquid: In volatile times, having cash on hand allows you to take advantage of opportunities and avoid forced selling.
Focus on quality: Companies with strong balance sheets and pricing power are better positioned to weather higher rates and economic uncertainty.
Watch the Fed: Central bank policy will remain a key driver of markets. Stay tuned to signals from the Federal Reserve and be ready to adjust your strategy as needed.
Stay informed: The landscape is shifting rapidly. Keep learning and stay engaged with credible sources of market analysis.
Final thoughts
My time in Switzerland was a reminder that the world is both vast and interconnected.
Even as I enjoyed the scenery and culture, the tremors from Washington and Wall Street were felt in Zurich and beyond.
The Moody’s downgrade and the spike in Treasury yields are not just headlines — they are signals of deeper shifts in the global financial system.
As always, I encourage you to do your own research, think critically, and make decisions that fit your own goals and risk tolerance.
If you want to keep learning and stay ahead of the curve, don’t forget to subscribe to my YouTube channel at https://tinyurl.com/5ydrzdxb.
For those seeking personalized coaching on trading and investing, you can book a session with me at www.streetwiseeconomics.com.
Until next time, stay wise and stay streetwise.
