Alarm over US government’s burgeoning debt rattles markets

News that the US has lost its last triple-A credit rating and fresh concern over the US federal government’s burgeoning debt pile unnerved markets on Monday, with long-term borrowing costs rising and stocks struggling.

Credit ratings agency Moody’s dealt a blow to Washington on Friday when it stripped the US of its top-notch rating, downgrading the world’s largest economy by one notch to AA1 and become becoming the last of the big three agencies to drop its triple-A rating for the US.

As Donald Trump seeks to push his “big, beautiful” tax and spending bill through Congress, Moody’s said it expected the US budget deficit to keep rising.

“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” the agency said. “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”

Trump administration officials sought to play down the significance of the setback. “Moody’s is a lagging indicator,” Scott Bessent, the treasury secretary, told Meet the Press on NBC on Sunday.

The US president has himself remained silent on the downgrade. On Monday morning, he used posts on his Truth Social platform to criticize celebrities including Beyoncé and Bruce Springsteen, who castigated Trump on stage in Manchester last week, for supporting his political rivals.

During a rare Sunday night vote, House Republicans advanced Trump’s tax cut and spending package out of a key committee. It has been estimated that the proposed bill could add as much as $5tn to the US’s $36.2tn debt pile over the next decade.

On Wall Street, the benchmark S&P 500 was trading down 0.4% during early trading, while the tech-focused Nasdaq Composite fell 0.6%. The FTSE 100 was down just 0.1% in London.

Bond markets also came under pressure, with the yield on 30-year US treasury bonds climbing 13 basis points to 5.026%. Yields rise as bond prices drop; an increase signals that investors are seeking a higher return for holding US debt. The dollar weakened against a basket of currencies.

“Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat,” said Moody’s. “In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher. The US’s fiscal performance is likely to deteriorate relative to its own past and compared with other highly rated sovereigns.”