Wall Street's major banks view Moody's downgrade this way

After losing its last top credit rating in the United States, the "sell-off of America" trade resurfaced on Monday, but major Wall Street investment banks believe the market can avoid any turbulence related to the downgrade. Last Friday, due to concerns about the U.S. fiscal situation, Moody's downgraded the U.S. credit rating from Aaa to Aa1. Following the news, there was a sell-off of U.S. Treasury bonds, with the yield on the 30-year U.S. Treasury bond briefly exceeding 5%, the highest level since 2023. Setting aside the tense sell-off sentiment in early trading on Monday, most forecasters on Wall Street did not anticipate a substantial increase in volatility, although they acknowledged that previous credit rating downgrades had caused disruptions. Here are the remarks from major Wall Street banks following the loss of the Aaa credit rating in the United States: JPMorgan JPMorgan analysts wrote on Sunday that Moody's downgrade is unlikely to trigger a replay of the turmoil in the bond market seen in April. They stated that it was expected that the yield on U.S. Treasury bonds would temporarily rise after the downgrade by Fitch in 2023, but macroeconomic factors were also at play at that time; rates were still rising, and bond yields continued to be driven by debt supply. The bank stated: "Given Moody's is the last credit rating agency to downgrade U.S. credit, this action was expected and we believe the market reaction may be more muted than in 2023. We expect the volatility resulting from this event to be less than the volatility seen shortly after the announcement of liberation day tariffs in early April, as investor positioning is now more neutral." Bank of America Bank of America also echoed JPMorgan's remarks, telling clients that they only expect a brief uptick in U.S. Treasury bond yields. Investors should not be concerned about being forced to sell, as major fixed income indices do not require holding AAA ratings to continue holding U.S. Treasury bonds. UBS and Morgan Stanley Regarding the stock market, UBS stated that despite the drop in U.S. stocks after the downgrade, stock market investors may be more focused on other developments. UBS analysts wrote: "With Moody's becoming the third credit rating agency to downgrade the U.S. rating, we believe the impact on investors may have diminished. In recent weeks, global investors have been more concerned about the effective tariff rate in the U.S., which we believe will stabilize within the range of 15%." Meanwhile, Morgan Stanley advised investors to buy stocks that have fallen due to the downgrade, as they believe that continued strong corporate earnings could drive the S&P 500 index higher again.