Moody's downgrade intensifies investor worry about US fiscal path

Uncertainty over the final shape of the so-called 'Big Beautiful Bill' has investors on edge even as optimism has emerged over trade

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A US sovereign downgrade by Moody's has exacerbated investor worries about a looming debt time-bomb that could spur bond market vigilantes who want to see more fiscal restraint from Washington.

The ratings agency cut America’s pristine sovereign credit rating by one notch on Friday, the last of the major ratings agencies to downgrade the country, citing concerns about the nation’s growing $36 trillion debt pile.

The move came as Republicans who control the House of Representatives and the Senate seek to approve a sweeping package of tax cuts, spending hikes and safety-net reductions, which could add trillions to the US debt pile.

Uncertainty over the final shape of the so-called “Big Beautiful Bill" has investors on edge even as optimism has emerged over trade. The bill failed to clear a key hurdle on Friday even as US President Donald Trump called for unity around the legislation.

“The bond market has been keeping a sharp eye on what transpires in Washington this year in particular,” said Carol Schleif, chief market strategist at BMO Private Wealth, who said that Moody's downgrade may make investors more cautious.