Treasury bonds have been viewed as the ultimate safe asset — the bedrock of the global financial system. But as the deadline for an agreement to avert a debt default loomed, Treasury bills due in June were priced as the near equivalent of junk bonds.
Treasury bonds have been at the heart of the debt ceiling drama.
Paradoxically, the best answer may be exactly what it was before this crisis: For safety, buy Treasurys. But each time the country has faced a debt ceiling standoff, that assumption has seemed naive. It has never been a question of having sufficient resources. What’s been in doubt is whether the political system would function well enough for the U.S. government to raise enough money to keep operating.
Back in 2011, for example, a protracted dispute over the debt limit nearly ended in a default and led to a downgrade in the pristine AAA rating of U.S. debt by Standard & Poor’s. Nonetheless, Treasurys rallied, even though they were the source of the trouble in financial markets.
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