With the debt ceiling looming, I'm starting to wonder what "the market" think about the possibility of default. Is there a fund, index or ETF that tracks the secondary market for treasury bonds? I would think something like that would reflect "the market's" concern about default. That is, if the treat of default is real, wouldn't the secondary market for treasury bonds start tanking as people move to sell their treasury bonds?
Thanks, Bill
The secondary market doesn't seem to think there's any real risk of default. Everything quoted for the next 24+ months is yielding very little - with 3- & 6-mo bills at close to a 0% yield. One 3-mo bill quote I'm getting is 99.999.
-Tad
Agreed. The SP500 is not pricing in a default (at least not yet, anyway).
seems like bond sales would slow and yeilds would increase to reflect greater risk. no?
on the stocks side i'm not sure what would happen. some industries are heavily subsidized. if the federal government ran out of cash they would be hurting and i'd expect stock prices to fall. also the cost of all kinds of raw material imports would go up since the dollar would be worth less.
i'm trying to get my head around the full effects of default and loosing the dollar as the reserve currency. where is that book?
But what would that look like? If investors really started to think that the US was going to default on its sovereign debt, do we have any idea what that would do to the S&P 500? In the false dichotomy of stocks vs. bonds, when bonds go down, stocks go up. So if everyone started selling off their treasury bonds, what would they do with the money? Buy stocks??? That doesn't seem to make a lot of sense to me (hence the false dichotomy).
I found a few graphs of what it might look like if investors started seriously thinking the US might default on its sovereign debt.
Exhibit 1: Greece
--Bill
i remember years ago one of my teachers saying when computers first came out they expected to be able to predict weather a month in advance. the models would get better and the computational power would be great. but they still can't get it right a day out. the system is so complex...you know, chaos theory...a butterfly flaps it's wings in NY and it rains in my backyard a week later.
one of things i learned the hard-ish way was about market timing. trying to predict the weather. don't try it. :D
all that said i still think america is in a time of transition. all my money is in traditional places and i'm starting to snoop around for other safe long term bets. but i still don't have any clue where those are or if they exist at all. and i'd like to at least read a bit on the possibilities of the future. kinda like that ben graham book but for the next 50 years.
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