Armageddon, collapse, disaster, Lehman on steroids, and calamitous are just some of the words being used by everyone except bond traders and Treasury holders. The only part of the curve that is selling off this morning in response to all the drama over the weekend is the 30 yr bond and its yield at 4.30% is still below the level of 4.39% it was at just a few weeks ago and well below the high of the year of 4.77% in Feb. The spread between 2’s and 30’s at 391 bps compares to 401 bps in Feb. My point of course is that while the S&P futures seem to be perturbed by the lack of a deal, the US Treasury market, the market most sensitive to the credit worthiness of the US, is barely responding, again. Granted, the treasury market is the most manipulated in the world thru Fed policy, but there is still clearly a message here. A deal will happen in the next few days or few weeks at worst but be sure that unless the ponzi scheme’s of Medicare, Medicaid and Social Security are substantially altered, we will all replay this soap opera again, I guarantee. One last comment on this, a debt default can happen but in a stealth way even if bondholders get their coupon’s and principal back and that is thru a debasement of the US$. That is where we default.
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