Will Moody's U.S. credit downgrade trigger 'flight to quality?'

House Ways and Means Committee member Rep. Mike Kelly (R-PA) covers his face with his hands as Rep. Adrian Smith (R-NE) sits next to him at a markup hearing in the Longworth House Building on Capitol Hill on May 13, 2025 in Washington, DC. (Credit: Chip Somodevilla—Getty Images)

• Long-term bond yields ticked higher after Moody’s became the last credit agency to remove the U.S. from its top rung of borrowers. Standard & Poor’s downgrade of U.S. debt in 2011 caused Treasuries to rally as investors paradoxically sought safety in government bonds. The situation today appears different, however, with fears about growing deficits and looming tax cuts intensifying.

Moody’s downgrade of the U.S. debt on Friday didn’t surprise many on Wall Street or Washington: Even Treasury Secretary Scott Bessent tried to downplay the credit agency’s move as a "lagging indicator." It’s much less of a shock than 14 years ago, when Standard & Poor’s became the first credit agency to cut America’s credit rating—and paradoxically pushed investors to snap up Treasuries.