Moody’s Ratings enters 2026 with a credit landscape materially different from the one it assessed a year earlier. In May 2025, Moody’s downgraded the United States sovereign rating from Aaa to Aa1, ending a rating continuity that dated to 1917 and bringing the last major agency into line with S&P and Fitch, both of which had already moved the U.S. below the top tier. That single action reshaped the global credit hierarchy. For the first time in modern history, a small group of U.S. corporations now carry higher ratings from Moody’s than the U.S. Treasury itself.
This page is the definitive 2026 reference for how Moody’s rates credit. It covers the current rating scale, the May 2025 U.S. downgrade and its implications, the shrinking Aaa corporate universe, Moody’s methodology framework, and what recent rating actions mean for investment grade bond and NNN real estate investors.
The May 2025 U.S. Sovereign Downgrade
On May 16, 2025, Moody’s Ratings downgraded the Government of the United States of America’s long-term issuer and senior unsecured ratings from Aaa to Aa1 with a stable outlook. The decision cited federal debt and interest payment ratios that had risen to levels materially higher than similarly rated sovereigns, with Moody’s projecting that federal debt would reach approximately 134 percent of GDP by 2035, up from 98 percent in 2024.
The timeline of U.S. sovereign downgrades is now complete across all three major agencies:
- S&P Global Ratings: AA+ since August 2011
- Fitch Ratings: AA+ since August 2023
- Moody’s Ratings: Aa1 since May 16, 2025
Moody’s had been the last holdout. The firm had assigned a country ceiling rating of Aaa on the U.S. since 1949 and an official sovereign rating since 1993. That multi-decade continuity ended in a single Friday-afternoon announcement that caught markets off guard and reset expectations for Treasury yields, corporate spreads, and global reserve allocation.
The Aaa Corporate Club in 2026
With the U.S. government now rated Aa1, the small group of issuers still holding Aaa from Moody’s represents some of the most elite credit profiles in the world. As of Q1 2026, the Aaa issuer list from Moody’s includes only a handful of U.S. corporations:
- Microsoft Corporation (MSFT) – Aaa at Moody’s, AAA at S&P
- Johnson & Johnson (JNJ) – Aaa at Moody’s, AAA at S&P
- Apple Inc. (AAPL) – Aaa at Moody’s (upgraded), AA+ at S&P
That is the entire U.S. Aaa corporate universe at Moody’s. Thirty years ago there were more than 60 U.S. corporations at the top of the scale. The compression reflects decades of balance-sheet optimization, leveraged M&A, and shareholder capital return programs that have pushed even the strongest investment grade issuers into the Aa and A tiers.
For context on what these ratings mean across the full scale, see our complete bond ratings chart comparing S&P, Moody’s, and Fitch scales.
Moody’s Long-Term Rating Scale
Moody’s uses a 21-notch scale for long-term issuer ratings, from Aaa at the top down to C at the bottom. Each rating carries a letter notation with a numerical modifier (1, 2, or 3) indicating position within the broader category: 1 is the upper third, 2 the middle, 3 the lower third.
| Moody’s Rating | S&P Equivalent | Category | Description |
|---|---|---|---|
| Aaa | AAA | Prime | Highest quality, minimal credit risk |
| Aa1 | AA+ | High Grade | High quality, very low credit risk |
| Aa2 | AA | High Grade | High quality, very low credit risk |
| Aa3 | AA- | High Grade | High quality, very low credit risk |
| A1 | A+ | Upper Medium | Upper-medium grade, low credit risk |
| A2 | A | Upper Medium | Upper-medium grade, low credit risk |
| A3 | A- | Upper Medium | Upper-medium grade, low credit risk |
| Baa1 | BBB+ | Lower Medium | Moderate credit risk, some speculative characteristics |
| Baa2 | BBB | Lower Medium | Moderate credit risk, some speculative characteristics |
| Baa3 | BBB- | Lower Medium (IG floor) | Moderate credit risk, lowest investment grade |
| Ba1 | BB+ | Speculative | Substantial credit risk, highest high-yield |
| Ba2 | BB | Speculative | Substantial credit risk |
| Ba3 | BB- | Speculative | Substantial credit risk |
| B1 | B+ | Highly Speculative | High credit risk |
| B2 | B | Highly Speculative | High credit risk |
| B3 | B- | Highly Speculative | High credit risk |
| Caa1 | CCC+ | Substantial Risk | Very high credit risk, poor standing |
| Caa2 | CCC | Substantial Risk | Very high credit risk |
| Caa3 | CCC- | Substantial Risk | Very high credit risk |
| Ca | CC | Default Imminent | Highly speculative, likely in or near default |
| C | C / D | In Default | Lowest rating, typically in default |
The investment grade floor at Moody’s is Baa3. One notch lower (Ba1) moves the issuer into speculative grade, also called high yield or junk. See what investment grade actually means for a full breakdown of why the Baa3/Ba1 threshold carries such market significance.
Rating Outlooks and Reviews
Beyond the letter-and-numeric rating, Moody’s attaches an outlook indicating the likely direction of the rating over the medium term (typically 12 to 18 months). The four standard outlook categories are:
- Stable (STA): Rating unlikely to change.
- Positive (POS): Rating may be upgraded.
- Negative (NEG): Rating may be downgraded.
- Developing (DEV): Rating could move either direction, contingent on a specific pending event.
When a rating is under more immediate scrutiny, Moody’s places it on Review, which can be Review for Upgrade, Review for Downgrade, or Review Uncertain. A Review flag typically resolves within 90 days and carries a stronger signal than an outlook change. For investors holding credit at the Baa3 floor, a Review for Downgrade is often a precursor to the fallen-angel transition into high yield.
Short-Term Ratings
Moody’s also issues a separate short-term rating scale for obligations maturing in 13 months or less:
- Prime-1 (P-1): Superior ability to repay short-term obligations
- Prime-2 (P-2): Strong ability to repay
- Prime-3 (P-3): Acceptable ability to repay
- Not Prime (NP): Issuer does not fall within any Prime category
Short-term ratings correlate with but do not perfectly track long-term ratings. An issuer at Baa2 long-term might carry P-2 or P-3 short-term depending on near-term liquidity position.
Recent Moody’s Actions and What They Signal
Beyond the May 2025 U.S. sovereign downgrade, Moody’s rating actions through 2025 and into 2026 reflect several themes that shape the current credit landscape:
- Apple upgraded to Aaa. Moody’s upgrade of Apple Inc. to Aaa placed Apple in the small group of U.S. corporate issuers at the top of at least one agency’s scale. Apple remains AA+ at S&P, making it a split-rated Aaa.
- Walgreens delisted and not rated. Following Sycamore Partners’ take-private of Walgreens Boots Alliance in 2025, Moody’s rating coverage of the company effectively ended. The real estate impact was immediate and visible: NNN cap rates on Walgreens-tenanted properties widened from the mid-5 percent range to 8.5 percent and higher.
- Advance Auto Parts downgraded in July 2025. Moody’s moved Advance Auto Parts to Ba3 with a negative outlook, reflecting structural competitive pressure and balance-sheet deterioration.
- Healthcare and dental DSO credit compression. Heartland Dental, EyeCare Partners, Aspen Dental, and Smile Brands all carry B or Caa Moody’s ratings, reflecting the ongoing stress in PE-backed dental support organizations.
These actions matter beyond the bond market. Every one of these names is also an active NNN real estate tenant, and the Moody’s rating directly compresses or expands the cap rate at which the underlying property trades. See our IG 180 credit tenant rating database for current Moody’s ratings on 180-plus NNN tenants.
Moody’s 2026-27 Global Macro Outlook
Moody’s recently published 2026-27 Global Macro Outlook frames the world economy as “stable but uneven.” This macro view is the foundational input to every Moody’s rating decision in 2026, and understanding it explains why upgrades and downgrades are landing where they are.
- World GDP: 2.5 to 2.6 percent growth in 2026 and 2027.
- Advanced economies: Approximately 1.5 percent growth, well below long term trend but no recession.
- Emerging markets: Roughly 4 percent growth led by India, with China decelerating.
- US specifically: Slightly above the developed market average, with consumption resilient and labor markets normalizing rather than contracting.
Moody’s identifies three structural pressures that are reshaping credit ratings:
- Higher global funding costs. The growing need to invest in data centers, AI infrastructure, and defense, combined with declining capacity for savings to finance investments, signals structurally higher cost of capital for both corporations and governments. This is a credit negative that affects every rated issuer at the margin.
- Private credit deterioration. Moody’s analysis of nearly 2,000 private credit borrowers showed declining credit quality since 2020 driven by rising leverage, worsening liquidity, weak free cash flow, and aggressive financial policies. While not directly part of the public investment grade market, contagion through bank exposure and refinancing pressures bears watching closely.
- Geopolitical risk. Moody’s flagged Strait of Hormuz disruption and Middle East tensions as material 2026 risks, with potential for sustained oil price spikes that could pressure global growth and reshape sector level credit metrics, particularly in transportation, chemicals, and consumer cyclicals.
For investment grade investors, the practical takeaway is that Moody’s rating bias in 2026 is mildly cautious. Upgrades require unambiguous balance sheet improvement. Downgrades arrive on relatively modest cash flow deterioration. The agency is positioning for an environment of higher funding costs and tighter credit dispersion, both of which support the “up in quality” theme that has dominated IG corporate bond markets in 2026.
2024 Default Experience and Transition Data
Moody’s and peer agency S&P publish annual default studies that quantify how well letter-grade ratings correspond to actual default experience. According to S&P’s 2024 Annual Global Corporate Default Study (covering the 1981 to 2024 period and published March 2025), the pattern is consistent:
| Initial Rating | 1-Year Default Rate | 10-Year Cumulative |
|---|---|---|
| AAA / Aaa | 0.00% | 0.76% |
| AA / Aa | 0.02% | 0.81% |
| A | 0.05% | 1.90% |
| BBB / Baa | 0.16% | 4.40% |
| BB / Ba | 0.62% | 14.53% |
| B | 3.27% | 27.79% |
| CCC/C / Caa/Ca | 28.30% | 54.24% |
Source: S&P Global Ratings 2024 Annual Global Corporate Default and Rating Transition Study, March 2025. Moody’s historical default rates by rating category broadly track these patterns with typical variation of 10 to 30 basis points. Figures are issuer-weighted averages.
The investment-grade universe (Aaa through Baa) has a 10-year cumulative default rate under 5 percent even at the lowest IG tier. The jump to speculative grade is dramatic: BB/Ba defaults at 14.5 percent over 10 years, B at 27.8 percent, and CCC/Caa and below at more than 54 percent. These numbers explain institutional aversion to anything below investment grade and why the Baa3/Ba1 boundary carries so much weight.
What Moody’s Ratings Mean for Real Estate Investors
For investors in single-tenant net lease real estate, the Moody’s rating of the tenant is one of the most consequential inputs to property valuation. The same credit quality that determines an issuer’s bond yield also compresses or expands the cap rate on any NNN property leased to that issuer:
| Moody’s Tenant Rating | Typical NNN Cap Rate | Primary Buyer Pool |
|---|---|---|
| Aaa to Aa3 | 4.00% to 5.25% | REITs, pensions, institutional 1031 buyers |
| A1 to A3 | 5.00% to 6.00% | Family offices, institutional, sophisticated 1031 |
| Baa1 to Baa3 | 5.50% to 7.00% | Broad 1031 market, private investors |
| Ba1 to Ba3 | 6.50% to 8.00% | Yield-oriented investors, value-add |
| B1 to B3 | 7.50% to 9.50% | Opportunistic, short-term-hold specialists |
| Caa and below | 9.00%+ | Distressed and special situations |
Cap rate ranges are approximate Q1 2026 market observations and vary by sector, location, lease term remaining, and guarantee structure. See our full investment grade triple net lease guide for sector-specific detail.
Frequently Asked Questions
What is the current Moodyu2019s rating for the United States?
Aa1 with a stable outlook. Moodyu0026rsquo;s downgraded the U.S. from Aaa to Aa1 on May 16, 2025, citing rising federal debt ratios and interest payment costs projected to reach levels significantly higher than similarly rated sovereigns.
Which U.S. corporations are rated Aaa by Moodyu2019s in 2026?
Three: Microsoft Corporation, Johnson u0026amp; Johnson, and Apple Inc. Microsoft and Johnson u0026amp; Johnson are also rated AAA at Su0026amp;P, while Apple is rated AA+ at Su0026amp;P (split rated).
What is the lowest Moodyu2019s rating still considered investment grade?
Baa3. One notch lower (Ba1) is the highest speculative grade or high yield rating. The Baa3 line is the single most consequential boundary on the rating scale because it determines institutional eligibility, index inclusion, and bank regulatory capital treatment.
How does Moodyu2019s rating scale compare to Su0026amp;P?
The scales are parallel with different notation. Moodyu0026rsquo;s uses Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3 in the investment grade range. Su0026amp;P uses AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-. Each Moodyu0026rsquo;s notch corresponds to the equivalent Su0026amp;P notch.
What does a Moodyu2019s u201cReview for Downgradeu201d mean?
Moodyu0026rsquo;s Review is a near-term flag indicating the rating is actively being evaluated and a change is likely within approximately 90 days. A Review for Downgrade means the firm is considering lowering the rating. For issuers at Baa3 (the IG floor), a Review for Downgrade is often a precursor to the fallen-angel transition into high yield.
How often does Moodyu2019s update ratings?
Ratings are under continuous review. Most issuers see no change in any given year. Recent data shows global upgrade rates of approximately 9.6 percent and downgrade rates of 5.8 percent in 2024. Outlook changes are more frequent and typically precede letter-grade actions by 6 to 18 months.
Why did Moodyu2019s downgrade the U.S. in May 2025?
Moodyu0026rsquo;s cited the projected increase in federal debt to approximately 134 percent of GDP by 2035 (up from 98 percent in 2024), rising interest payment ratios, and the failure of successive administrations to reverse large annual fiscal deficits. The downgrade brought Moodyu0026rsquo;s in line with Su0026amp;P (AA+ since 2011) and Fitch (AA+ since 2023).
How does a Moodyu2019s rating affect NNN real estate values?
The tenantu0026rsquo;s Moodyu0026rsquo;s rating directly drives the cap rate at which NNN real estate trades. Investment grade tenants (Baa3 or higher) typically support cap rates of 4.00 to 7.00 percent. Speculative grade tenants (Ba1 and below) typically support 6.50 percent and higher. A downgrade across the IG boundary can widen cap rates by 100 to 250 basis points on the same property.
Capital Markets: Owner Side Implications
Every Moody’s rating action on a tenant immediately reprices the underlying NNN real estate. A Walgreens going from Baa3 to unrated drove cap rates from the mid 5 percent range to 8.5 percent and higher in months. An AutoZone or O’Reilly upgrade compresses cap rates 50 to 100 basis points on the same logic. Owners who watch Moody’s rating pages carefully can position acquisitions, dispositions, and refis with months of lead time.
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Related Reading
- Bond Ratings Chart: S&P, Moody’s & Fitch Scales Compared
- Investment Grade Bonds: Yields, Credit Ratings & Sector Analysis (cluster anchor)
- Investment Grade Bonds vs High-Yield Bonds
- The Role of Credit Rating Agencies in Determining Investment Grade Status
- The 10 Biggest Problems with Credit Rating Agencies
- What Investment Grade Actually Means: BBB- and Why It Matters
- IG 180 Credit Tenant Rating Database
This page is part of the InvestmentGrade.com bond cluster and is updated quarterly to reflect current Moody’s rating actions and market data. Last updated Q1 2026.
