Nobody From Nowhere (@i8dc)

Occasional Common Sense

Default? Bond Markets Never Thought So

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With all the talk of “default,” you might think it could actually happen.  But the bond markets, which are generally thought to provide an excellent market reckoning of risk, don’t think so.  Following up on Krugman, here are the yields for Treasury securities of all durations over the last month:

For all maturities longer than 1 year, Treasury yields have fell as the debt ceiling deadline approached.

One thing is clear – whatever the financial markets think of the debt ceiling fight, they see it as a decidedly short-term phenomenon.  While yields demanded for 1-month, 3-month, and 6-month bills increased over the month and spiked on Friday, the 1-year was flat for the month and all longer maturities dropped, with a significant move lower on Friday, in the face of Congressional nonsense.

The debt ceiling isn’t a concern to the bond markets.  Or perhaps it is, but the poor economy, and the prospect of dramatic and damaging budget cuts are swamping that concern, driving money into what are still the safest investments in the world.

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Written by David Clayton

July 31, 2011 at 9:36 pm

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