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?