The bond vigilantes are back and they are not happy. The TED spread has turned negative with banks better credits than the US government. It was the bond market that imposed discipline on Bill Clinton during the budget crisis of 1994 and they seem to be doing the same thing here. There is no master plan for s0luition by the bond market other than to remind the government that there are consequences to actions.
Look at the numbers. Four week Treasury bills are at 21 bps while 3-month T-bills are at 5 bps, 30-day CP is at 16 bps, and 1-month LIBOR is at 17 bps. However remote, there is a fear of default on short-term bills. The market is saying that we think this could lead to non-payment in the short-run and we have to plan for that risk. There is no judgement on who is right or wrong other than to say we have to plan for the worst and we do not want to be a creditor to the US government.
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