FT News Briefing A warning shot to the Treasuries market
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May 20, 2025 Tensions escalate as the U.S. considers stepping back from its role in mediating the Ukraine conflict. Meanwhile, long-term borrowing costs soar due to a Moody's downgrade, raising concerns about the Treasury market. In corporate news, Regeneron purchases 23andMe out of bankruptcy. Additionally, a significant reset in UK-EU relations emerges from a recent summit, highlighting issues of trade and defense amidst lingering Brexit challenges.
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US Credit Rating Downgrade Reasons
- Moody's downgraded the US credit rating due to growing public debt and fiscal deficit risks.
- The downgrade signals a slightly elevated risk of US default but overall risk remains low.
Market Reaction to US Downgrade
- US long-term Treasury yields rose and prices fell after Moody's downgrade due to increased bond issuance.
- A bigger deficit means the government must issue more bonds, driving prices down and yields up.
Challenges in Treasury Market Demand
- The US Treasury market faces pressure as foreign investors step back amid rising debt issuance.
- Soft demand combined with increased issuance could threaten market stability.