When S&P’s downgraded the U.S. the fallout should have been higher yields, in other words, all the bond investors in theory should have demanded that Uncle Sam pay more interest in exchange for a bet on the U.S. of A. That didn’t happen.
What happened was the opposite. Investors panicked when the U.S. downgrade occurred. Once the panic began, investors made the proverbial “flight to safety” which for now still happens to be U.S. treasuries.
Think about it. People lost confidence in the solvency of the U.S. A., they panicked and made some knee-jerk reactions, driving the price up (and the yield crashing down to about 2%) of the very thing they were worried was going to go down.Read More