Hey all, anxiously awaiting our results. I have been thinking about this and wanted to get some opinions. Lets say hypothetically the US defaults. Theoretically, the Government bond yields would increase (sharply), cause depreciation in the values of current US bonds. However, couldnt a default also create a market panic and a flight to safety, leading to a sell off of stocks and purchase of bonds? In that case, even though the US defaulted its cost of debt would remain low because of the flight to safety. What do you think? Which is more likely? I would say option 1. Also, shouldnt the mere fact that the US is in this situation make the govt Bond yields increase?
The mere fact that the US is in this situation the US Govt bond yields should increase but the market believe that the debt ceiling will be raised and/or the whole issue will be resolved (and I agree with them). Theoretically, if the the US Govt defaults there will be a sell off of equities and market panic because the risk premium demanded for equities will rise. The higher the demanded risk premium the lower the price
US defaults, bond yield up, equity falls, gold will soar and become king
there will be a war…
not gonna happen