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July 28, 2011 at 11:31 AM
The benchmark 10-year Treasury traded places with the U.K. 10-year gilts at various times on Thursday as global bond investors viewed Treasuries as a higher risk. The yield on British gilts dipped as low as 2.94% midday on Thursday at a time when 10-year Treasuries yielded 2.95%.
The one-basis point difference signaled that bond investors considered British debt a hair safer than U.S. debt, which historically has been viewed as a nearly risk-free asset. The last time investors rated British debt more highly occurred, briefly, in April 2010.
As the day advanced, 10-year gilts retreated to a 2.97% yield, and Treasuries rallied back to a 2.95% yield. But the temporary slip in the relative position of the two debt securities was interpreted by some as a sign of lost confidence in the government’s management of the debt crisis currently gripping Washington.
The Wall Street Journal’s Market Beat blog put it this way: “Assuming markets are perfectly efficient, this means that investors think the UK, which also has a AAA credit rating, is a safer bet than the US, a sign that the Debtpocalypse and imminent credit downgrade of Uncle Sam has soured the US as a safe-haven asset.”
Britain’s Financial Times had this to say: “The current prices come as senior US bankers have raised concerns that the US Federal Reserve is not taking seriously enough the threats from rating agencies to downgrade US debt if politicians fail to agree [on] the terms of a rise to the government’s debt ceiling.”
