Til Debt Do Us Part

Ratings agency Fitch stripped the US of its coveted AAA credit rating last week, throwing the proverbial cat among the market pigeons. Global equities sold off, but after a strong run, a pull-back is normal and shouldn’t be of much concern by itself. More notably, the yield on US government bonds (Treasuries, or sometimes spelled Treasurys) rose, implying falling bond prices. The increase in bond yields, which takes the 10-year yield back to the highest level in this cycle, probably has less to do with the Fitch announcement and more with the ongoing resilience in the US economy implying a higher-for-longer interest rate environment.