Hong Kong - Asian stocks fell with the dollar Monday after Moody's removed the United States' last gold standard sovereign bond rating, citing the growing debt pile that it warned could balloon further.
The move dealt a blow to markets, which had enjoyed a healthy run-up last week after Washington and China hammered out a deal to temporarily slash tit-for-tat tariffs, dialling down the tensions in a painful trade war between the superpowers.
After the rout sparked by US President Donald Trump's Liberation Day tariffs bazooka, investors have in recent weeks raced back to buy up beaten-down stocks as the White House tempered its hardball tariff approach and then announced the agreement with China.
But selling pressure returned Monday after Moody's cut its rating on US debt to Aa1 from Aaa, noting "the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns".
It added that it expected federal deficits to widen to almost nine percent of economic output by 2035, up from 6.4 percent last year, "driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation".
Analysts said the cut in the gold standard rating -- which follows S&P in 2011 and Fitch in 2023 -- could indicate investors will want higher yields on Treasuries, pushing up the cost of government debt.
Still, Treasury Secretary Scott Bessent dismissed the announcement, saying it was "a lagging indicator" and blaming Trump's predecessor, Joe Biden.
"We didn't get here in the past 100 days," he told CNN. "It's the Biden administration and the spending that we have seen over the past four years that we inherited, 6.7 percent deficit-to-GDP, the highest when we weren't in a recession, not in a war."
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