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Late on Friday, the rating agency Moody’s downgraded the US sovereign rating one notch to Aa1, having had the US on a negative outlook for a year, ING’s FX analyst Chris Turner notes. Below the 100.20/25 support 99.20 is the risk “The reasons for the downgrade – the failure of successive administrations to tackle deteriorating fiscal and debt metrics – are very familiar to financial markets by now. And this comes in a week when the Trump administration is trying to push another tax-cutting package through the House. Estimates suggest that this new bill will add another $3-5trn to the US debt stock over the next 10 years. Treasuries are a little softer on the news, as are US equities and the dollar. The US 10-year Treasury swap spread has drifted back out to 54bp, but is some way from the extreme 60bp reading seen in mid-April.” “The link between US sovereign risk, Treasuries, and the dollar is one of capital flight. Are global investors shifting their portfolios away from the US? Data on this comes out with a lag, and Friday’s release of US Treasury TIC data for March provided few clues. Foreigners were still healthy buyers of US asset markets in March, with foreign official accounts increasing their holdings of US Treasuries by $26bn. Within that, however, China’s holdings of US Treasury securities fell by $19bn. Understandably, the TIC data covering events in April will be eagerly awaited when it is released in mid-June. On the subject of Treasuries, the market will be on the lookout for demand for the auction of $16bn of 20-year US Treasuries, which takes place on Wednesday.” “Looking ahead this week, the US data calendar is relatively light. There are plenty of Federal Reserve speakers but given much uncertainty, we doubt they will…

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Filed under: News - @ May 19, 2025 1:28 pm