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NEW YORK, May 20 (Reuters) - Moody's U.S. debt downgrade is raising concerns that investors could reevaluate their appetite for U.S. government bonds, with the potential for rising yields to put pressure on stocks that are trading at elevated valuations.
Moody's decision to downgrade the U.S. debt rating by a notch late last week due to mounting government debt and rising interest expenses has rekindled fears of a broader investor reappraisal of U.S. sovereign debt, which could drive up borrowing costs across the economy.

"Every time something like this happens, investors just think maybe they should shift a little more out of the U.S.," said Campe Goodman, fixed-income portfolio manager at Wellington Management Company.
Benchmark 10-year yields, which influence mortgage rates as well as borrowing costs for companies and consumers, rose to over 4.5% early on Monday but the selloff then moderated. Yields move inversely to prices. On Tuesday, the bond market selloff continued, with the 10-year yield last seen at 4.48%, slightly above where it closed on Monday.
Longer-dated 30-year yields rose more sharply, hitting a high of over 5% on Monday, the highest since November 2023, and flirting with that level again on Tuesday.

Higher yields have repercussions for stocks, analysts and investors say, as they represent higher borrowing costs for companies as well as greater investment competition from fixed income.
Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, said a rise in 10-year yields beyond 4.5% could be a headwind for stocks. "I think what markets are grappling with, is if the 30-year is breaking out, does that mean the rest of the curve is next?" Miskin said.
Over the past few years, stocks have come under pressure during some instances when Treasury yields moved above 4.5%, with sharply rising yields often negatively correlated with stock performance. One prominent example is late 2023 when the S&P 500 slid sharply as the 10-year yield ascended to 5%.
In a note on Monday, Morgan Stanley equity strategist Michael Wilson said 4.5% on the 10-year yield has been "an important level" for equity market valuation over the past two years, with stocks tending to face valuation pressure when 10-year yields breach that threshold.

Trades w 2 Cats wrote: ↑Wed May 21, 2025 11:26 am JFR- thanks for the bond news. The Japanese bond market is blowing up as well. So two central banks having big trouble.