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Bond market shrugs off U.S. debt warning

A U.S. savings bond

Kai Ryssdal: Timothy Geithner was out making the rounds on business television this morning, talking more to the markets than anybody else. Geithner's doing all he can to minimize the debt-related blowback from Standard & Poor's yesterday that Washington's on notice for a triple-A rated downgrade. We'll pick up our coverage with where our New York bureau chief Heidi Moore left off yesterday.

Heidi Moore: If the U.S. is downgraded, the government would have to pay more to borrow -- which would, of course, increase the deficit even more.

And that gets us to the bond market, where the government goes to borrow all that money. Stocks got clobbered yesterday, but bonds were fine. Borrowing actually got cheaper for Washington after the S&P news broke. How come?

Here's Heidi one more time.


Heidi Moore: When you think of U.S. Treasury bonds, you don't usually think of beauty queens. But it might help. That's because Treasurys, like beauty queens, often look best when compared to who's standing next to them.

Right now, Treasurys are standing next to debt from Greece and other troubled European countries -- so they look pretty good even after the bomb S&P dropped on Monday.

Here's Ken Taubes. He's the chief investment officer of Pioneer Investments.

Ken Taubes: The debt woes in Europe continue to plague markets.

Europe's bonds are hard to sell. The Greek government has to pay 13 percent interest to borrow money for 10 years. The U.S. pays only 3 percent -- and there's plenty of demand for Treasury bonds.

Guy Lebas is a fixed-income strategist with Janney Montgomery Scott. He says it takes a lot these days to throw the bond market off.

Guy Lebas: This is an event that five years ago would have been both unexpected and unimaginable. So the fact that the reaction was relatively calm and relatively orderly really speaks to the strength and resilience that the financial crisis has bred into the financial markets.

Bond investors tend to think longer term, so they don't overreact at old news like the giant deficit, says Anthony Valeri. He's the chief fixed-income strategist for LPL Financial.

Anthony Valeri: Ultimately economic growth, the level of inflation and what the Federal Reserve ends up doing and when they hike interest rates will have a greater impact than ratings decisions.

So unless the economic outlook sours, Treasurys are still winning the pageant.

In New York, I'm Heidi Moore for Marketplace.

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.
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