Aug 8, 2011

define irony

It's ironic that the S&P US credit downgrade which has resulted in a plummet in the equities market is having the opposite effect on US government bonds.

The yield on the 10 year US government bonds has been in free fall today (when yields fall it means prices are increasing which means people are willing to pay more for that asset).

Why would that be? Well the downgrade on US debt introduces a huge amount of investor concern about the world economy at large. When people fear asset value destruction they jump into the safest things they can think of. So even though US credit was downgraded, it is, relatively, still much safer than equities, corporate bonds, etc. So people are selling those and buying US debt (and gold (and probably guns (and maybe Depends))). It's bizarrely self-consistent but still humorous.

No comments: