Despite a historic downgrade of U.S. government debt on Friday, investors still judge it a safe harbor when weathering market turbulence, if Monday’s “flight to quality” is any indication.
“Fears that America would have to pay more to borrow on the world’s financial markets after being stripped of its coveted AAA rating proved to be wide of the mark on Monday, as yields on U.S. treasury bonds fell,” wrote Guardian UK’s Larry Elliott on Monday in a view from abroad.
While this may prove to be a temporary phenomenon, Elliott noted there were “good reasons to think that bond yields will remain low and could even fall further.”
“In one sense, a decline in U.S. bond yields is counterintuitive,” he wrote. “The debt downgrade by S&P was supposed to warn investors that the U.S. is now a riskier place to put their money. Investors, in turn, should demand higher interest rates for holding US assets.”
What Your Peers Are Reading
So what’s happening? Three explanations were proffered.