For all the talk this week of a potential US sovereign debt default, the market seem to be convinced otherwise. All the King’s politicians were out pronouncing a default to be ‘cataclysmic’ or ‘unthinkable’. Yes, the US Congress has been consumed with the debt ceiling in the US. It seems $14.3 trillion is not enough to borrow. The politicians want more. Citizens are once again threatened with the idea of not taking on more debt as a bad thing. Really? I thought it was good to minimize debt and pay it off if possible. Anyway, the equity markets dipped a bit this week but the most interesting thing was the behavior of the bond market.
Staring a default threat in the face, the bond market rallied. That’s right, the US Treasury bond market rallied. The chart below is the US 10-year Treasury note and we can see from the chart that it rallied about 2% this week. The message is there is great doubt about a default. It is just not going to happen. See the chart below.
3 months: UST
Chart courtesy StockCharts.com
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