Trump Budget Plan Prompts Rating Drop And Loss of Confidence in Treasuries
May 21, 2025—The bond markets for long-term U.S. Treasuries spoke clearly on Wednesday, and it wasn’t pretty. The 30-year Treasury yield rose to 5.096 percent as bond dealers sold off U.S. long-term debt holdings.
The bond markets underpin a country’s economic stability. Volatility in government bonds can impact politics, as it did in the United Kingdom under the short-term leadership stint of Liz Truss. Now, President Trump is testing the limits as he pushes forward a multitrillion-dollar budget plan for the next 10 years.
Trump and House Republicans call it the tax cut and budget plan the “big, beautiful bill,” but today, the bond markets signaled their displeasure. Furthermore, the Financial Times warned that the 10-year plan would increase borrowing costs. The FT Editorial Board criticized the Trump administration’s “erratic approach to policymaking,” saying it is raising alarms.
Bigger Deficits Prompt Moody’s Downgrade
Meanwhile, the rocky bond market comes on the heels of a credit downgrade by Moody’s Ratings.
The agency still considers the United States’ credit to be good due to the size and dynamism of its economy. However, the U.S. credit score is less stable than it was before the Republican-run Congress started moving President Trump’s tax and budget bill.
Moody’s lowered the rating on long-term U.S. debt offerings from Aaa to Aa1. It remains a “stable outlook” that assumes the United States will maintain its separation of powers in governance.
The ratings agency attributed the downgrade to political instability and irresponsibility.
“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.”
Deficits and Rising Debt
Moody’s predicted that U.S. federal deficits—the annual amount it spends more than it collects—to jump from 6.4 percent of GDP in 2024 to 9 percent of the overall economy by 2035. The higher interest rates on the debt, lower tax revenues, and mounting entitlement spending are the primary causes of the expected spike.
The U.S. government will have to pay $1 trillion this year just to cover the costs of the interest on its $36.89 trillion debt. The Center for a Responsible Federal Budget projects the 10-year cost on paying interest will reach $15.7 trillion over the next 10 years.
Meanwhile, the debt-to-GDP ratio would rise by 25 percentage points to 125 percent over the same period, the FT reported.
Moody’s Ratings Agency Sticks By US Dollar
Notably, Moody’s still views the U.S. dollar as the dominant global reserve currency “for the foreseeable future” due to the lack of viable alternatives. Still, the agency noted that central banks are diversifying into other options.
The GER notes that this comes at a time of rising interest in cryptocurrencies among nations and investment firms. But, aside from El Salvador’s experiment with Bitcoin, those are not options as reserve holdings for countries.
Finally, Moody’s said its outlook could change if it sees higher interest rates and a rapid move out of dollar assets by global investors.
“We do not consider this to be a likely scenario since a credible alternative to the US dollar as global reserve currency is not readily apparent,” Moody’s said.
