Moody's downgrade ripples through bond market, causes worries for stocks

NEW YORK, May 21 (Reuters): Moody's US debt downgrade is raising concerns that investors could reevaluate their appetite for US government bonds, with the potential for rising yields to put pressure on stocks that are trading at elevated valuations.

Moody's decision to downgrade the US debt rating by a notch late last week due to mounting government debt and rising interest expenses has rekindled fears of a broader investor reappraisal of US sovereign debt, which could drive up borrowing costs across the economy.

"Every time something like this happens, investors just think maybe they should shift a little more out of the US," said Campe Goodman, fixed-income portfolio manager at Wellington Management Company.

Benchmark 10-year yields, which influence mortgage rates as well as borrowing costs for companies and consumers, rose to over 4.5 per cent early on Monday but the selloff then moderated. Yields move inversely to prices. On Tuesday, the bond market selloff continued, with the 10-year yield last seen at 4.48 per cent, slightly above where it closed on Monday.

Longer-dated 30-year yields rose more sharply, hitting a high of over 5 per cent on Monday, the highest since November 2023, and flirting with that level again on Tuesday.