Scare Tactics: Government Default Imminent?

There is a lot of talk from Obama and the Treasury Department on the looming threat of a government default. It is all pure baloney. The below chart is the yield curve for Treasury debt over the past few days, as derived from data provided by the Treasury itself. What do you notice about the numbers?

Answer: They are holding steady. Long-term yields have not risen. This means that smart and experienced investors are not being fooled by the Obama Administration’s scare tactics.

If smart investors foresaw a government default, they would be in a rush to sell Treasury debt they might be holding. This would cause long-term interest rates to rise. We can see that 10, 20 and 30yr bonds have not seen a significant change over the past few days. This is because smart investors are not convinced that the government will default. At the present time, I agree. Unless the yield curve begins to reflect rising interest rates, all talk of default is little more than hot air.

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