reasury-bond yields were stable on Wednesday but edged up on Thursday, with the 10-year benchmark rising to 4.19% from 4.05% before the downgrade. Long-term U.S. yields are almost a percentage point below those of instruments with maturities of one year or less–the so-called inverted yield curve–a possible sign of an impending recession but certainly not an indicator of bond-market panic.
St. Aubin adds that Treasury bonds are fairly priced at around current levels and that the market may be underestimating the risk of a recession and overestimating inflationary pressures. Longer-term “you cannot continue to deficit spend without creating inflation,” but the risk of default is mostly theoretical for the U.S. at this juncture.
You can look at it this way, she adds: “Suppose your car insurance company found out that you were playing a game of chicken with your car, seeing who could get to the edge of the cliff first. They’d want to raise your insurance rates.”