Even with the gridlock on the debt ceiling, exchange traded funds that invest in U.S. Treasuries have been relatively subdued.
Despite worries over the U.S. deficit and debt-limit debate, some analysts say Treasuries could benefit from another potential flight to safety similar to 2008. The market is one of the world’s deepest and most liquid, and the U.S. isn’t the only country wrestling with debt issues after the financial crisis.
On the other side, bears say yields are so low that investors aren’t being compensated for the risk. Also, Treasury bonds have already enjoyed a multi-decade run, and U.S. credit risks are rising.
Global debt jitters have grown so severe that investors have once again driven yields on U.S. Treasury notes back into negative territory, reports William D. Cohan for Bloomberg. U.S. T-bills with less than three months until maturity traded at negative yields.
“It was virtually impossible to find any amount of certain maturities of short duration Treasury bills,” remarked Gifford Combs, a founder of Dalton Investments, in the report. [Investors Seek Safety in Bond ETFs]
Ratings firms Moody’s and Standard & Poor’s have warned they may downgrade the triple-A rating on U.S. government bonds. [Treasury Bond ETFs Gyrate on Debt Deal Speculation.]
“Despite months of negotiations, the two sides remain at odds on fundamental fiscal policy issues,” S&P stated. “Consequently, we believe there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.”