A default could cause turmoil in the stock and bond markets, plus a replay of the fear that froze lending in the depths of the 2008 financial crisis. In the chaos, investments you'd think were a sure bet to fall might rise instead, and vice versa.
Consider the assets at the heart of the crisis -- Treasury bonds. You would expect interest rates on Treasurys to rise the closer Washington gets to missing a debt payment. Investors would demand higher rates because of the greater risk they wouldn't get their money back. After Argentina defaulted in 2002, foreign lenders required higher rates.
But some bond traders are betting the opposite will happen. They think nervous money managers could rush into Treasurys if Washington blows past the Aug. 2 deadline to raise the debt ceiling. The buying would push interest rates lower.
No comments:
Post a Comment