The Markets Nobody likes to balance the budget. Some pundits said Moody’s rating downgrade of U.S. Treasuries was a nothing burger. After all, the rating change didn’t provide investors with any new information. Moody’s was the third rating service to lower U.S. government bond ratings. S&P Global downgraded U.S. Treasuries in 2011, and Fitch Ratings followed suit in 2023. However, Moody’s decision focused attention on fiscal policy – the way the United States government taxes and spends. In 46 of the past 50 years, the U.S. government has run a deficit, meaning it has spent more than it received from taxes and other sources of revenue, reported FiscalData. Every annual deficit adds to the public debt, which is about $36 trillion, according to the U.S. Debt Clock. The U.S. government finances annual deficits (and the overall debt) by issuing Treasury bills, notes, and bonds. The U.S. promises Treasury buyers (a group that includes individuals, institutions, and governments) that it will pay interest for a specific period and then repay the amount borrowed. When yields increase, so does the amount of interest the United States must pay When government bond buyers have concerns about a government’s fiscal policy, demand for bonds may fall and yields may rise. That happened to U.S. Treasuries last week. The yield on the 30-year U.S. Treasury bond exceeded five percent. “The move above 5 [percent] is striking because that has been the general cap on the 30-year for about two decades,” reported Karishma Vanjani of Barron’s. While higher yields make U.S. Treasuries more attractive to investors, they also may create challenges for economic growth. “As the national debt grows and interest rates rise, the United States will spend more of its budget on the cost of servicing that debt – crowding out opportunities to invest in the economy,” reported The Peter G. Peterson Foundation. The United States is already paying a hefty amount of interest. In 2024, interest payments on the U.S. debt were about $880 billion, more than the U.S. budget for national defense, reported Michael Mackenzie, Liz Capo McCormick, and Ye Xie of Bloomberg. The U.S. isn’t the only country where yields are rising. “From the U.S. to Japan, long-term borrowing costs for the world’s biggest economies have surged as investors question the ability of governments to cover massive budget deficits,” reported Alice Gledhill and Mia Glass of Bloomberg. Over the week, major U.S. stock indexes moved lower amid worries about rising yields and fiscal policy. Yields on longer maturities of U.S. Treasuries finished the week higher. | 
