Moody Blues
All three major agencies downgraded the US credit rating, but markets barely reacted—likely because the debt concerns were already priced in.
The big news recently was Moody’s downgrading the US sovereign debt rating from AAA to AA. They are the last of the “big three” credit rating agencies to lower the US rating, following Fitch in 2023 and S&P more than a decade ago.
As with the Fitch example, credit default swap (CDS) spreads for the US barely moved during the period surrounding the downgrade news. The CDS rate, which reflects the cost to insure against the US defaulting on its sovereign debt, has been relatively stable since a rise in early April. That rise appears more correlated with the onset of tariff news that weighed on markets globally. Moody’s cited a rise in US government debt as the basis for the downgrade. The US debt level is not exactly breaking news. Perhaps the CDS level remained about the same because the market didn’t learn anything new.
EXHIBIT 1
US Five-Year Credit Default Swap Spread (Basis Points)
May 20, 2024–May 19, 2025
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