Hypothetical US Default defaults, increase, purchase, current, leading

prashantsahni

Hey all, anxiously awaiting LII results, but thought id post this on LIII board as well.

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?

PieMan

I guarantee that if the US defaults, US bonds will decrease in value. People will buy non-US assets, like the Euro.

Dapper425

Well, people will probably buy those two currencies as well. US default would result in broad depreciation of the dollar compared to many currencies.

Unforseen

Well, hopefully it wont come to that.

GL with your test results.

noel

Forget bonds. If the US defaults US bonds will tank and other countries could follow suit due to the knock on effect. What will be a sure bet in times of crises such as this is gold - the eternal save haven - that price will simply sky rocket.

Roflnadal

If the US defaults on its debt, do you really think that the flight to safety (i.e. quality) will be to US debt?

RMontgomery

Honestly, im not sure thats why im asking. I still feel like the US will be viewed a "safe", and panic in the markets would to that. Like we said above, maybe int bonds, but Euro situation isnt good as well.

I know the theory etc but im curiious to see what would actually happen.

dandman

if the US gov't defaults the world will end and you need not worry about what to own

SkipE99

I think the flight to quality will be to other AAA rated country debt (Swiss and perhaps German come to mind first).

Of course, if the economic contagion became an economic plague with US defaults, it wouldn't really matter where you went. Under a mattress probably as good as any place.

jcole21

The notion of the US "defaulting" on its debt seems a little absurd in the first place. There are tons of things which are likely to not be paid before treasury holders are not going to be paid.