The combination of expected lower growth and flight to quality seems to trump the issue of a US debt downgrade at this time. The short-term nature of traders means that a debt crisis in early August is way out in the future.
Treasuries have continued to rally at the expense of those who have advocated that they are risky. Nevertheless, we are seeing some interesting behavior with long-dated Treasuries. Yesterday, the 30-year bond sold-off while the 10-year and shorter maturities have actually rallied. The seems to be a view that if you want quality it should not come at the back end of the yield curve. 3-month Treasuries have turned negative which provides further evidence that flight to quality is the driver of the markets.
The threat of a European and US debt crisis is again causing a flow into perceived safe assets.
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