Moody’s Downgrades U.S. Treasurys: What Investors Need to Know

Brew

| May 2025

WHAT ARE THE IMPLICATIONS OF MOODY’S DOWNGRADE OF U.S. TREASURYS?

On May 16th, Moody’s downgraded its rating of U.S. Treasury securities from Aaa to Aa1. This move aligns Moody’s with S&P and Fitch, which previously downgraded U.S. Treasurys in 2011 and 2023, respectively (see chart below). As a result, the U.S. no longer holds a top-tier credit rating from any of the three major bond rating agencies.

Why the Downgrade?
Moody’s cited several reasons for the downgrade, including:

Rising national debt
Persistent fiscal deficits
Increasing interest costs, which now exceed those of many other highly rated sovereigns

In response to the announcement, U.S. Treasury yields rose and equity markets showed initial caution—signs that investors are reassessing potential risks. While the U.S. dollar remains the world’s primary reserve currency and U.S. capital markets are among the most liquid and resilient globally, the downgrade sends a clear signal about the country’s long-term fiscal challenges and the importance of sound fiscal stewardship.

What’s New—and What Isn’t

Moody’s didn’t reveal anything markets didn’t already know. Concerns over U.S. debt and deficits have persisted for years, and many investors have likely priced in these risks. Still, the timing is notable: the downgrade comes as Washington prepares to debate potential tax cuts that could further reduce federal revenues.

How Might This Affect Your Finances?
In theory, a downgrade could lead to higher borrowing costs for the U.S. government. That impact could trickle through the economy in several ways:

Government Level: Higher interest payments would add to future deficits and strain public finances.
Consumer & Business Level: Treasury yields often serve as a benchmark for other interest rates. An increase could mean higher borrowing costs for mortgages, auto loans, credit cards, and corporate debt.

Perspective Matters
Despite the downgrade, U.S. Treasurys remain among the safest and most liquid assets in the world. The U.S. government issues debt in its own currency and maintains deep, stable capital markets. There is no immediate concern about the government’s ability to meet its obligations. The downgrade is better viewed as a warning about the long-term trajectory of fiscal policy, not a crisis in the making.

Looking Ahead

The U.S. still retains significant financial strengths. However, the downgrade underscores the importance of proactive fiscal management and serves as a reminder of the headwinds that could develop if fiscal challenges remain unaddressed.

As always, we’re here to help you interpret developments like these and ensure your financial strategy remains sound and aligned with your long-term goals.

MARKET BACKDROP

ASSET CLASS SUMMARY
As of 05/28/2025

Asset Class	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
U.S. Stock	+6.67%	-0.90%	+0.27%	+12.16%	+13.35%	+15.36%	+12.10%
Global Ex U.S.	+5.28%	+8.07%	+14.02%	+12.61%	+10.27%	+10.72%	+5.88%
U.S. Bond	-1.05%	-0.82%	+1.90%	+5.31%	+1.14%	-0.95%	+1.45%
Global Bond	-0.58%	+2.72%	+4.78%	+6.49%	+0.63%	-1.38%	+0.92%
U.S. Real Estate	+1.02%	-4.33%	+1.47%	+14.47%	+0.92%	+6.74%	+5.80%

SECTOR SUMMARY
As of 05/28/2025

Cyclical	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
Consumer Cyclical	+9.27%	-0.26%	-5.62%	+21.73%	+13.80%	+12.50%	+12.22%
Financials	+4.93%	-2.73%	+5.11%	+24.93%	+14.59%	+18.71%	+11.89%
Materials	+4.00%	-2.33%	+3.12%	-3.40%	+1.68%	+11.43%	+7.65%
Real Estate¹	+1.20%	-3.68%	+2.23%	+15.27%	+0.85%	+7.05%	+6.88%

Sensitive	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
Comm. Services	+9.73%	+1.16%	+3.44%	+18.74%	+21.71%	+15.46%	+10.91%
Energy	-1.95%	-9.42%	-3.87%	-8.71%	+1.04%	+21.04%	+4.63%
Industrials	+10.16%	+4.90%	+8.60%	+17.82%	+16.28%	+17.88%	+11.61%
Technology	+11.69%	+2.57%	-1.73%	+11.24%	+23.30%	+22.67%	+21.42%

Defensive	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
Consumer Defensive	+1.85%	-0.87%	+6.91%	+13.57%	+7.94%	+11.27%	+8.97%
Health Care	-5.19%	-11.47%	-4.05%	-6.33%	+1.04%	+7.03%	+7.65%
Utilities	+2.21%	+2.33%	+7.11%	+16.21%	+5.54%	+9.79%	+9.72%

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Consumer Cyclical (S&P 500 Consumer Discretionary (Sector) Total Return), Financials (S&P 500 Financials (Sector) Total Return), Materials (S&P 500 Materials (Sector) Total Return), Real Estate (S&P 500 Real Estate (Sector) Total Return¹), Comm. Services (S&P 500 Communication Services (Sector) Total Return), Energy (S&P 500 Energy (Sector) Total Return), Industrials (S&P 500 Industrials (Sector) Total Return), Technology (S&P 500 Information Technology (Sector) Total Return), Consumer Defensive (S&P 500 Consumer Staples (Sector) Total Return), Health Care (S&P 500 Health Care (Sector) Total Return), Utilities (S&P 500 Utilities (Sector) Total Return).

1) The index Launch Date is Sep 19, 2016. All information for an index prior to its Launch Date is hypothetical back-tested, not actual performance, based on the index methodology in effect on the Launch Date. Back-tested performance reflects application of an index methodology and selection of index constituents with the benefit of hindsight and knowledge of factors that may have positively affected its performance, cannot account for all financial risk that may affect results and may be considered to reflect survivor/look ahead bias. Actual returns may differ significantly from, and be lower than, back-tested returns. Past performance is not an indication or guarantee of future results. This back-tested data may have been created using a “Backward Data Assumption”. For more information on “Backward Data Assumption” and back-testing in general, please see the Performance Disclosure.

This article is for informational purposes only and is not intended as individual investment advice or as a recommendation of any particular security, strategy or investment product. Investing involves risk including the potential loss of principal. SEIA is not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Past performance is not indicative of future results. Signature Investment Advisors, LLC (SIA) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Securities offered through Signature Estate Securities, LLC member FINRA/SIPC. Investment advisory services offered through SIA, LLC, 2121 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067, (310) 712-2323. The information provided in this article is for general informational purposes only and does not constitute professional advice. Individual results may vary, and it is important to consult with a qualified professional before making any financial or legal decisions. For details on the professional designations displayed herein, including descriptions, minimum requirements, and ongoing education requirements, please visit seia.com/disclosures. SIA does not accept time-sensitive, action‐oriented messages or transaction orders, including orders to purchase or sell securities, via electronic mail.

Moody’s Downgrades U.S. Treasurys: What Investors Need to Know

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