【Macro】Weekly Navigator｜U.S. Credit Downgrade Raises Long-Term Fiscal Alarm

【Macro】KD Capital Weekly Navigator｜U.S. Credit Downgrade Raises Long-Term Fiscal Alarm

May 18 – May 24, 2025

KD Capital Macro Research Team

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A. Macro & Market Highlights

• Moody’s Downgrades U.S. Sovereign Credit Rating:

The U.S. rating was cut from Aaa to Aa1 with a stable outlook, citing unsustainable debt and interest burdens. This marks the final downgrade from the last major agency still rating the U.S. at the highest level.

• U.S. Debt Sustainability in Focus:

Federal debt-to-GDP is projected to reach 118% by 2035, while interest payments may account for 30% of revenue. Despite this, Moody’s emphasized America’s structural advantages—economic scale, dollar dominance, and institutional resilience.

• Muted Market Reaction Reflects Confidence in Treasuries:

The May 21st 20-year bond auction saw soft demand (bid-to-cover at 2.46x), but long-term buyers—including central banks and pension funds—remained active. Rating impact was limited; fiscal uncertainty remains the core concern.

• Trump Tax Plan Stokes Policy Risk Debate:

Concerns grow over a renewed multi-trillion-dollar tax cut plan by Trump, which markets fear may accelerate fiscal deterioration. Investors increasingly hedge with gold and real assets to guard against credit and inflation risk.

B. Strategic Takeaway

While the credit rating downgrade underscores mounting fiscal risks, structural confidence in the U.S. persists. We advise clients to monitor policy developments closely and consider a diversified allocation that balances duration risk, USD resilience, and safe-haven exposure.

| Disclaimer |

This report is intended for KD Capital clients only. It does not constitute investment advice or a recommendation to buy or sell securities. All views are subject to change. Investors should exercise judgment and consult licensed professionals before taking action.