The "Sell America" trade is back after Moody’s downgrade

On May 19, 2025, U.S. Treasury yields surged following Moody’s downgrade of the U.S. credit rating from Aaa to Aa1, reflecting concerns about the nation’s fiscal stability. Long-dated Treasury yields hit significant highs, with the 30-year yield reaching 5.03%, the highest since late 2023, and the 10-year yield rising to 4.5%.

The downgrade by Moody’s came shortly after the U.S. Congress passed President Donald Trump’s extensive tax-cut bill, which is expected to widen the federal deficit. Moody’s cited persistent fiscal deficits and escalating interest costs as key reasons for the downgrade, projecting federal debt to increase from 98% of GDP in 2024 to 135% by 2035.

According to Bloomberg, financial markets responded nervously; U.S. equity futures dropped significantly, with S&P 500 and Nasdaq futures falling over 1.5%, and a weakened dollar drove gains in precious metals.

Analysts noted a lack of responsiveness in bond and currency markets to the growing fiscal risks, with the 30-year Treasury yield marking a critical warning. This reflects growing skepticism among investors about the sustainability of U.S. fiscal policy and overall economic health.

The “Sell America” trade, characterized by investors moving away from U.S. assets, has reemerged in response to these developments. This trend underscores concerns about the U.S.’s fiscal trajectory and the potential implications of recent policy decisions.

President Trump’s trade policies, including the imposition of new tariffs, have further complicated the economic landscape. On April 2, 2025, Trump announced a “reciprocal tariff” strategy, introducing a baseline 10% tariff on all imports and higher rates on specific countries.

These measures, referred to as the “Liberation Day” tariffs, have been criticized for their potential to exacerbate inflation and disrupt global trade.

In response to these challenges, bipartisan efforts are underway in Congress to reassert legislative authority over trade policy. The proposed Trade Review Act of 2025 seeks to require the President to notify Congress of any new tariffs and obtain approval for them to remain in effect beyond 60 days.

As the U.S. navigates these fiscal and trade challenges, the resurgence of the “Sell America” trade highlights the need for careful consideration of economic policies and their long-term implications.