How will Moody’s downgrade of American debts influence mortgage interest?
10-year revenue reaction
The downgrade took place at the end of Friday, which led to minimal market movement, but the bond returns checked a few basic points that afternoon. While I write this on Sunday evening, the 10-year return is traded at 4.48%, with little response to the trade on Sunday evening. The debtendown grade itself has no legal consequences, which means that certain banks or countries are not obliged to sell their treasury, which would usually send the rates higher.
This situation differs from commercial debt, whereby a downgrade to junktatus would force or the company itself to take action. This explains the lack of important movement after the announcement.
When S&P The fault of the country lowered in 2011, the 10-year return went lower when QE2 ended and continued to do this after the downgrade on August 5, 2011. We were not confronted with inflation at the time and still experienced a slow recovery of the big financial crisis. So the economic background was much more important at the time.
In August 2023, Row The American debts lowered just before a key Federal Reserve Meeting. During that meeting, the Fed raised the interest rates with a ragless tone, which pushed the return from 10 years to 5%. Shortly after the meeting, the Fed indicated that the Tariefhike cycle was over, which led to a massive rally in the bond market, which made the return of 10 years from 5% to almost 3.80%.
In my opinion, what happened to the economy and the Federal Reserve during the last two downgrades is more critical for the return of 10 years and its immediate reactions than the downgrades themselves. The bond market has been quite volatile this year and the Fed seems uncertain about the next steps. Moreover, we still do not have a complete solution for the trade war.
Every adverse reaction of this event can lead the mortgage interest to 7.25% or higher, which would be the year to date in 2025. What is important for the bond market and mortgage interest is what happens to the economy and the FED policy, as my examples for the past two downgrades show.
The timing of this downgrade was intentional because the budget proposed by the Republicans will increase the national debt. This is not shocking because all budgets increase the blame; We cannot balance the budget within our demography and a low tax rate. In 2019 I wrote an article Prediction that the debt could reach $ 71 trillion in 2060, and that estimate was considered conservative at the time.
Conclusion
I am writing on Sunday evening and there is currently a mild response to the bond market, but I wanted to give some context about what happened in the past with the two earlier downgrades of the American debts and how the 10-year return has responded.
This year we presented many challenges that were not part of our 2025 game plan.
Nevertheless, the latest data from the housing market indicates that existing housing sales have shown remarkable resilience, partly because they rise from historically low levels. Over time, all dramatic events end and this downgrade will be a different addition to that list. In the long term, this downgrade may not be as important as the headlines suggest.
