Treasury yields rise after US credit downgrade; Restaurant costs soar; Consumers expect to curb nonessential spending

A rise in U.S. Treasury bond yields, after Moody’s downgraded the nation’s credit rating, added to a string of events upsetting financial markets at a time of rising uncertainty about the economy stirred largely by trade tariff and inflation worries.

The credit rating agency on Friday downgraded its rating on the quality of U.S. credit, taking it down one notch from Aaa to Aa1, citing factors that included rising costs for government debt payments. Moody’s had assigned the top Aaa rating to U.S. credit for much of the past 75 years.

The 30-year Treasury yield reached above 5% on Monday, ending the trading day hovering around levels not seen in nearly two years. Analysts have noted that rising yields bring down Treasury bond prices and put upward pressure on interest rates for commercial and residential real estate, raising financing costs and in some cases bringing down property values.

Major U.S. stock indices are recovering after taking losses on Monday morning, with the Dow Jones Industrial Average ending the day up about 0.3% and the S&P 500 rising nearly 0.1%.

Prior to the credit rating firm’s downgrade, Moody’s Chief Economist Mark Zandi told a New Orleans gathering of NAIOP, a commercial real estate trade group, that risks remain for the fragile bond market and the larger economy due to tariff and federal debt uncertainty. Zandi said the Federal Reserve may lower interest rates by this fall if overall uncertainty lingers.

Restaurant operating costs, particularly for food and labor, have jumped 30% since before the pandemic, crimping profitability and growth prospects, according to a new report from the National Restaurant Association.

The Washington, D.C.-based trade group said the pandemic brought double-digit percentage hikes across all major expense categories compared with 2019 levels, led by 35% jumps for both food and labor costs. Cost hikes have severely threatened profit margins, which averaged a slim 5% prior to the pandemic for a typical restaurant, leaving operators now with no choice but to raise menu prices — just to break even in some cases.

“While the growth rates of input costs have eased somewhat from the 2021 and 2022 peaks, they continue to trend higher,” the restaurant group said in a statement. “More recently, the operating environment was made even more challenging as these cost pressures were coupled with dampened customer traffic.”

The past year has been a tough one for many U.S. restaurant chains and franchisees, marked by job cuts, location closings and in some cases bankruptcy filings. Last week the full-service casual chain Bahama Breeze abruptly closed 15 locations across eight states, as owner Darden Restaurants cited lagging financial performance.

A recent report by industry data firm Technomic said 32 of the nation’s top 500 restaurant companies by revenue experienced double-digit sales percentage declines in 2024, with many of those posting similar drops in location counts. Annual sales growth for the top companies was 3%, the lowest in a decade, Technomic reported.

Consumers expect to increase their nonessential spending by a median 1% in the coming year, the lowest reading in nearly five years, according to the latest national survey by researchers at the Federal Reserve Bank of New York.

The regional Fed conducts its survey to gauge consumer expectations every four months, and the projection for year-ahead nonessential spending in the April survey was down from 1.5% in the December survey. With the prospect of continued inflation, consumers expected overall spending in the next 12 months to grow by 3.3%, up from 3% in the December poll.

“The share that reported making a large purchase on electronics, home appliances, furniture, homes, vehicles, and vacations decreased in April, while the share reporting spending on home repairs increased slightly,” the New York Fed said in a statement Monday.