Do U.S. Treasuries Now Have Default Risk?
Moderator: Global Moderator
Do U.S. Treasuries Now Have Default Risk?
With the debt crisis looming, is it no longer true that US bonds have zero default risk, as HB hypothesized? And if so, what of replacing them with the Swiss Franc or Japanese Yen instead for the bond portion of the portfolio?
Re: Do U.S. Treasuries Now Have Default Risk?
As far as I can tell (I watch the market more than I should) I have yet to see Treasury bonds react to the debt ceiling talks. They have had violent reactions to Bernanke and economic data though.
Thus far they are fulfilling the hypothesis proposed by HB. I wouldn't begin to think about tinkering with something as important as the long-bond portion until they were clearly signaling a default risk premium was being priced in.
Bottom line: Treasuries have been going up throughout the debt ceiling debacle.
Thus far they are fulfilling the hypothesis proposed by HB. I wouldn't begin to think about tinkering with something as important as the long-bond portion until they were clearly signaling a default risk premium was being priced in.
Bottom line: Treasuries have been going up throughout the debt ceiling debacle.
everything comes from somewhere and everything goes somewhere
Re: Do U.S. Treasuries Now Have Default Risk?
There's gotta be a little tiny bit of default risk priced into treasuries, usually not even worth worrying about.
I can't believe that isn't growing at this point to bring yields up.
I can't believe that isn't growing at this point to bring yields up.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: Do U.S. Treasuries Now Have Default Risk?
There is a huge difference between not being able to service debt and not wanting to service debt.moda0306 wrote: There's gotta be a little tiny bit of default risk priced into treasuries, usually not even worth worrying about.
I can't believe that isn't growing at this point to bring yields up.
Right now, Congress is just saying it doesn't want to service any more debt, but like so many things in life that we don't WANT to do, we still do it if the alternative is something we want even less.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: Do U.S. Treasuries Now Have Default Risk?
I don't think the market or ratings agencies distinguish much between who is getting defaulted on...bond owners or social security recipients.
If the government does not meet promised obligations to any group after Aug. 2, market will get really nasty across the board.
In fact...pre-markets are already shaping up for a volatile day. Maybe if the market tanks like 500 points tomorrow the squabbling idiots will actually react and get something done.
I would feel more confidence if a class of fifth graders was running the legislature than this group of spineless windbags.
If the government does not meet promised obligations to any group after Aug. 2, market will get really nasty across the board.
In fact...pre-markets are already shaping up for a volatile day. Maybe if the market tanks like 500 points tomorrow the squabbling idiots will actually react and get something done.
I would feel more confidence if a class of fifth graders was running the legislature than this group of spineless windbags.
All of humanity's problems stem from man's inability to sit quietly in a room alone. - Blaise Pascal
Re: Do U.S. Treasuries Now Have Default Risk?
The debt ceiling debate is really getting toxic and I think John McCain's speech last night was hopefully an eye opener for a lot of freshmen in the House:
Quoting from WSJ (John McCain):
The biggest risk we seem to face right now is not default, as I hardly think either party is that foolish, but losing AAA credit rating. If that happens, a lot of pension funds would no longer be able to buy Treasuries and this might create a rush out of them, causing yields to rise.
I also think that a small amount of default risk and credit rating risk is priced in already. When the debt ceiling is raised and if we manage to keep our AAA rating, we might see a nice drop in yields.
Quoting from WSJ (John McCain):
I just purchased $2,300 worth of LT treasuries last night. Am I crazy? I might be, since who knows what could happen between now and August 2nd, but I have to believe that this political theatre going on is just a high stakes game of chicken and sooner or later one of the cars is going to swerve out of the way.The idea seems to be that if the House GOP refuses to raise the debt ceiling, a default crisis or gradual government shutdown will ensue, and the public will turn en masse against . . . Barack Obama. The Republican House that failed to raise the debt ceiling would somehow escape all blame. Then Democrats would have no choice but to pass a balanced-budget amendment and reform entitlements, and the tea-party Hobbits could return to Middle Earth having defeated Mordor.
The biggest risk we seem to face right now is not default, as I hardly think either party is that foolish, but losing AAA credit rating. If that happens, a lot of pension funds would no longer be able to buy Treasuries and this might create a rush out of them, causing yields to rise.
I also think that a small amount of default risk and credit rating risk is priced in already. When the debt ceiling is raised and if we manage to keep our AAA rating, we might see a nice drop in yields.
"I came here for financial advice, but I've ended up with a bunch of shave soaps and apparently am about to start eating sardines. Not that I'm complaining, of course." -ZedThou
Re: Do U.S. Treasuries Now Have Default Risk?
Storm,
I'd call it chicken... but that implies both sides are at fault. Regardless of our opinions on debt/deficit levels, I think it's nothing short of fiscal terrorism to hold-up the debt-ceiling vote, and not just use the normal budgeting process as a way to get the budget they want.
If we're going to run government like this, we have far more dangerous issues than debt levels.
Not that they even care about the deficit... notice tax-hikes are completely off the table.
This is the fiscal equivalent of a left-wing plan to rid the world of nukes... by launching them at our cities.
This is me getting political... I'll stop.
I'd call it chicken... but that implies both sides are at fault. Regardless of our opinions on debt/deficit levels, I think it's nothing short of fiscal terrorism to hold-up the debt-ceiling vote, and not just use the normal budgeting process as a way to get the budget they want.
If we're going to run government like this, we have far more dangerous issues than debt levels.
Not that they even care about the deficit... notice tax-hikes are completely off the table.
This is the fiscal equivalent of a left-wing plan to rid the world of nukes... by launching them at our cities.
This is me getting political... I'll stop.
Last edited by moda0306 on Thu Jul 28, 2011 7:42 am, edited 1 time in total.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine