Economics Stack Exchange Archive

Why did Treasuries yield plunge after USA was downgraded?

• posted by: catbert on 2011-10-12
• tagged: usa, interest, rating
• score: 1

When S&P downgraded credit rating (on 5th August) of the USA federal government, its market price actually rose instead of falling.

This is against what was expected (when corporate bonds are being downgraded, they actually fall and their yields rise). What could be a reason that USA debt behaved differently?

Answer 86

• posted by: mehaase on 2011-10-12
• score: 1

Great question, I’m not sure it has a clear answer. Most increases in treasury prices are labeled by the media as “flight to safety”, i.e. the world is spooked and the US seems safe, even if our politicians can’t agree on anything. Several countries in the Euro zone are at risk of default, and a giant real estate bubble is growing in China.

Answer 92

• posted by: MarkHu on 2011-10-12
• score: 1

This seems to be a prime example of the fact that pundits can’t really pick just one news item as the primary cause for a market change in any given day or week. Most days headlines seem just like random soundbites:

• Markets decline on death of Osama Bin Laden –May 1, 2011
• European Markets Decline on Lower Oil –May 12, 2011
• Stock markets decline on growing concerns over European debts –May 20, 2011
• Canadian markets gain as gold climbs to a record –Aug 10, 2011

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