Moody's Downgrades US Credit Rating; RBA Cuts Interest Rate Amid Trade Uncertainty
Key Takeaways
- Moody’s downgraded the US credit rating, citing concerns about rising debt and deficits.
- Reserve Bank of Australia cut its key interest rate for the second time this year.
- European Commission lowered its growth forecast due to tariffs imposed by Donald Trump.
- BlackRock is underweight the long end of the yield curve, favoring the short end.
- Retail traders bought a record dip in US stocks after the US credit downgrade.
Top Stories
Moody's downgrades US credit rating citing debt concerns.
On May 19, 2025, Moody’s lowered the credit score on the US, citing concerns about ballooning debt and deficits. This downgrade, joining similar actions by Fitch and S&P, signals a deterioration of the nation’s finances and potential increase in borrowing costs.
Australia's central bank cuts interest rate amid trade uncertainty.
On May 20, 2025, the Reserve Bank of Australia (RBA) cut its key interest rate for the second time this year. This decision was influenced by trade-related uncertainty, which led to a tumble in the Australian currency and government bond yields.
European Commission lowers growth forecast due to tariffs.
On May 19, 2025, it was reported that the European Commission lowered its growth forecast due to Donald Trump's tariffs.
BlackRock underweight long end of yield curve.
On May 19, 2025, BlackRock's head of iShares Investment Strategy, Kristy Akullian, stated that they remain underweight the long end of the yield curve and favor the short end, anticipating continued international investment in the U.S. with potential hedging. BlackRock indicated that it has been structurally underweight the long end of the yield curve due to expectations of rising deficits, higher inflation, and increased U.S. Treasury issuance and expressed a preference for adjusting around the duration and favoring the short end of the yield curve. Kristy Akullian also noted the continued strong impulse to allocate to U.S. equities.
Retail traders buy record dip after US downgrade.
On May 19, 2025, retail traders engaged in a record dip buying spree, reversing a 1% decline in the S&P 500 Index. The decline was triggered by the US credit downgrade from Moody’s Ratings. Individual investors purchased a net $4.1 billion in US stocks through 12:30 p.m. in New York, according to data compiled by JPMorgan Chase & Co.
Bonds & Currencies
Mortgage bonds widen after US credit downgrade.
On May 19, 2025, mortgage bonds supported by government-backed companies like Fannie Mae and Freddie Mac were trading slightly wider after Moody’s Ratings downgraded the US. Risk premiums on recently produced 30-year mortgage bonds guaranteed by Fannie Mae rose to roughly 1.54 percentage points above a blend of Treasuries as of 11:20 a.m. in New York, compared to 1.49 percentage points on Friday.
SNB President: No alternative to US Treasuries.
On May 19, 2025, it was reported that SNB President Schlegel Sees No Alternative to US Treasuries.
Euro rally confidence grows; targets $1.20.
On May 20, 2025, traders are increasingly confident in the Euro's rally, with bullish Euro option bets significantly outpacing bearish ones. Hedge funds are targeting gains beyond $1.20.
Central Banks in Action
Jefferson: Fed can be patient, policy in 'good place'.
Jefferson stated that the Fed can be patient and that policy is in a ‘good place.’
Brazil may halt tightening cycle amid restrictive rates.
On May 19, 2025, central bank President Gabriel Galípolo stated that Brazil needs interest rates to remain at a very restrictive level for longer. This increased investors’ expectations that policymakers may halt the current tightening cycle at their next meeting in June.
Economic Trends
Jamie Dimon: Credit is a 'bad risk' amid Trump tariffs.
On May 19, 2025, JPMorgan Chase CEO Jamie Dimon stated that "Credit today is a bad risk" at the firm’s investor day. He also mentioned that the Trump administration tariffs are still "pretty extreme."
Rubenstein: US fiscal deficit bigger threat than tariffs.
On May 20, 2025, David Rubenstein of Carlyle Group Inc. stated in Tokyo that the widening US fiscal deficit is a bigger issue than tariffs. He warned that uncontrolled debt could undermine the dollar's stability as a reserve currency.
Trump's tax bill adds $3.8 trillion in spending.
According to a report published on May 19, 2025, Trump's tax bill passed the House committee and advanced to the Senate. The bill is expected to add $3.8 trillion in spending.
Malaysia's trade hits almost three-year high in May.
On May 20, 2025, Malaysia's trade rose to an almost three-year high. Exports surpassed expectations amid front-loading activity.
Australia warns of nearly 6% unemployment in trade war.
On May 20, 2025, it was reported that Australia’s central bank warned that the unemployment rate could climb to nearly 6% in a “trade war” scenario. This scenario involves the US re-imposing higher ‘Liberation Day’ tariffs in 2026 and all countries retaliating.
Long-term yields rise, discouraging capital inflow.
On May 19, 2025, it was reported that there is a steady march higher in long term yields because you're discouraging inflow of capital that we need.
Congress unwilling to address sustainability issues.
On May 19, 2025, it was reported that Congress doesn't seem willing to address the issues of sustainability.
Corporate Actions
Nippon Steel reaffirms commitment to U.S. Steel takeover.
Nippon Steel Corp. has reinforced its commitment to invest in United States Steel Corp. should President Donald Trump approve the Japanese company’s proposed $14.1 billion takeover.
KKR plans £8 billion debt reduction for Thames Water.
According to a report published on May 19, 2025, KKR & Co. plans to reduce Thames Water’s debt by about £8 billion ($10.7 billion). This is part of a turnaround plan for the company.
Alibaba shares slide on US concerns over Apple deals.
According to a report published on May 19, 2025, shares in Alibaba slid down 2% after a report that the Trump administration raised concerns over potential deals between Alibaba and Apple.
Solar stocks slump on potential tax credit cuts.
On May 19, 2025, shares of solar companies like Sunrun Inc., Enphase Energy Inc., and First Solar Inc. slumped. This followed a commitment by conservative Republican lawmakers to end key clean-energy tax credits earlier than planned; Sunrun Inc. fell as much as 8%, Enphase Energy Inc. was down as much as 5.3%, and First Solar Inc. declined as much as 6.8%.
Royal Caribbean regains investment-grade status from Moody's.
Royal Caribbean Cruises Ltd. regained its investment-grade status on May 19, 2025, as Moody’s Ratings matched the upgrade that S&P Global Ratings made three months prior. Moody’s raised the cruise operator a notch to Baa3 and kept its outlook at positive.
Zorlu Holding plans asset sales, job cuts for debt.
On May 20, 2025, it was reported that Zorlu Holding is preparing asset sales and job cuts to alleviate investor concerns regarding its $4.9 billion debt. Zorlu management, in an investor call hosted by J.P. Morgan Securities last week, prioritized asset divestments, including land holdings.
Market Insights
JPMorgan: High-grade bonds more attractive after US downgrade.
On May 19, 2025, JPMorgan Chase & Co. reported that high-grade corporate bonds are likely to become more attractive to fund managers. This is due to bond yields being pushed higher following the US losing its top credit grading.
Mizuho manages securities conservatively amid rate uncertainty.
On May 20, 2025, Mizuho Financial Group Inc. announced it is managing its securities portfolio “very conservatively” as it prepares for the next investing opportunity after shrinking its bond holdings. CEO Masahiro Kihara stated the bank wouldn’t build up big positions until it is confident the Bank of Japan isn’t likely to raise rates any more.