Credit downgrade, Treasury yields rattle markets to open week

Wall Street faced a rocky day of trading Monday as investors reacted negatively to the U.S. government’s credit downgrade and a spike in Treasury yields.

The Dow Jones Industrial Average dropped nearly 200 points, and the S&P 500 and Nasdaq traded in negative territory after the opening bell.

The Moody’s agency downgraded the U.S. government credit rating Friday evening from its top Aaa to Aa1, citing high national debt and the government ability to deal with interest payments.

The rating brought it in line with other credit agencies that have given the U.S. its second-highest available rating.

The U.S. faces more than $36 trillion in debt, a level that has risen in recent presidential terms under both parties.

Moody’s, in explaining the downgrade, pointed in part at a possible extension of the 2017 Republican tax-cut bill, saying it would add $4 trillion to federal deficits over the next decade.

A House committee late Sunday advanced a large bill with the cuts and other programs, though the legislation will face fierce debate in the wider Congress.

Treasury Secretary Scott Bessent said the credit rating is a “lagging indicator” tethered to spending under the Biden administration.

“Just like [Transportation Secretary] Sean Duffy said with our air traffic control system, we didn’t get here in the past 100 days,” Mr. Bessent told NBC’s “Meet the Press” on Sunday. “It’s the Biden administration and the spending that we have seen over the past four years.”

Treasury yields rose above the 5% mark amid fears that investors are dumping U.S. bonds.

The yields previously rose after Mr. Trump announced his “Liberation Day” tariff plan on April 2. Mr. Trump later suspended the hefty levies, citing in part the market reaction.

The White House says the economy will be on good footing once it implements an interlocking agenda of tariffs to protect U.S. manufacturing, tax cuts and energy programs to lower costs.

“The world has confidence in the United States of America, in our economy, once again,” White House press secretary Karoline Leavitt said Monday.

She pointed to big-dollar investments from Middle East countries and major companies, plus recent inflation reports that were better than expected.

Mr. Trump is urging businesses and consumers to be patient. Over the weekend, he said Walmart should “eat” the cost of his tariffs after the giant retailer, citing the levies, said it would have to raise prices soon.

Tariffs are a tax or duty paid by importers on the goods they bring in from foreign markets.

Mr. Trump has characterized the tariffs as a cost borne by other countries. However, foreign nations don’t pay the tariffs directly to the U.S. Treasury. 

In many cases, U.S. companies will pay the levies, and they might pass on at least some of the cost to consumers through higher prices.

“The president is committed to ensuring that prices remain low for American consumers, and he maintains the position that foreign countries will absorb these tariffs,” Ms. Leavitt said.