The recent warning by Moody’s intensifies the turmoil of US Treasuries due to worries over the government shutdown.

Moody’s, the credit rating giant, has warned that if the looming government shutdown in the U.S. occurs, it may have implications for credit assessment. A shutdown would highlight the weaknesses in the institutional and governance strength of the U.S. compared to other highly-rated governments. Last week, the Federal Reserve’s commitment to keep higher interest rates resulted in a surge in Treasury bond yields. The possibility of a government shutdown has further fueled the decline in the U.S. bond market, with yields surpassing 4.5%. Moody’s has stated that a shutdown would have a negative impact on the credit rating of the U.S. sovereign, emphasizing the fragility of U.S. institutional and governance structures. The agency has highlighted the constraints of political polarization on fiscal policymaking at a time when fiscal strength is declining due to widening deficits and deteriorating debt affordability. While Moody’s believes the economic impact of a shutdown would be short-lived, it warns that the longer it continues, the more severe the consequences could be for the broader economy. The immediate effect would be reduced government spending, but an extended shutdown could disrupt both the U.S. economy and financial markets.