U.S. government debt may face greater pressure this week after credit rating agency Moody stripped of its top triple AT-A credit rating.

Moody's hit Washington last Friday when it lowered the U.S. and warned of rising government debt levels and an increase in budget deficits. Moody's lowered its credit rating to the United States from AAA to AA1, becoming the last of the three major agencies to downgrade the United States.

The move is because concerns about the U.S. fiscal trajectory have risen. U.S. national debt is now at 36tn (£27), and economists fear that Donald Trump's "a big and beautiful bill" (blocked by right-wing MPs last Friday) could raise the deficit by cutting taxes.

Moody warned in explaining its decision that it hopes the U.S. budget deficit continues to rise and criticizes U.S. politicians for not taking action to improve the country's fiscal situation.

“The continuous U.S. government and Congress have failed to reach consensus on the trend of reversing large annual fiscal deficits and growing interest costs. We believe that due to the considerations currently under consideration, substantial reductions in mandatory spending and deficits will result.”

“Over the next decade, we expect that as rights spending increases, government revenue remains flat. In turn, the ongoing, huge fiscal deficit will drive higher government debt and interest burdens.

Investors hope the move will not have a lasting market impact, although it will focus on U.S. debt levels.

"While this is historic and will attract media attention, its market impact may include it," Allianz chief economic adviser Mohamed El-Erian posted on X.

In the past few years, U.S. government debt has weakened. Prices fell, raising yield or interest rates on 10-year treasury bills to nearly 4.5%. Production rises when prices fall.

Tracy Chen, portfolio manager at Brandywine Global Investment Management, told Bloomberg that there could be more sales pressure now, because “a downgrade could indicate that investors will demand higher Treasury yields.”

But Toby Nangle, a former head of asset allocation for thread allocation in Colombia, said regulators often don’t distinguish between AAA and AA1 when setting capital risk weights. This means that the bank's risk-weighted capital asset calculations seem unlikely to be affected by rating changes.

"So, is this downgrade important for financial plumbers? From a mechanical point of view, the answer is almost certainly not at all," Nangle wrote on FT Alphaville.

Stocks fell in 2011, and the S&P 500 fell more than 6% in the next trading day after S&P became the first major credit institution to strip its credit ratings.

The market also declined in 2023, when Fitch lowered its U.S. rating from AAA to AA+.

This time, IG market analyst Tony Sycamore reported, “Only IG’s weekend market has only smaller risk aversion, gold trading at 0.27% higher, $3210, and Nasdaq Futures fell by -0.38% after the announcement after Moody’s announcement.

Carol Schleif, chief market strategist at BMO Private Wealth, said Moody's downgrade could make investors more cautious.

"The bond market has been paying attention to the progress in Washington this year," Schleif said.

White House Communications Director Steven Cheung criticized Moody's actions, claiming: "Moody's economist Mark Zandi is an Obama adviser and Clinton donor and has been a never-to-be-damaged donor since 2016."

However, Zandi is the chief economist for Moody's Analytics, not its ratings division.

Some investors point out that the United States cannot be forced to default on its debts due to the issuance of US dollars.

"Let's do it. If there's an asset on this planet with the least chance of default, it's a U.S. fiscal bond," said Stephen Innes, managing partner at SPI Asset Management.

"The U.S. government issues debt in printed and controlled currencies and has a global reserve currency. When your central bank can call for settlement liquidity with heavy-threat measures, you won't default. This is not a moral hazard - it's just an operational fact."