Long touted as hands-down the world's "safe haven" securities, the behavior of U.S. Treasuries during and after the COVID-19 pandemic calls that label into question, suggesting they are little different from the debt issued by the likes of Germany, Britain, France, or even big corporations.
"In response to COVID, U.S. Treasury investors seem to have shifted to the risky debt model when pricing Treasurys," wrote New York University's Roberto Gomez-Cram, London Business School's Howard Kung and Stanford University's Hanno Lustig in the paper.
New York University's Roberto Gomez-Cram, London Business School's Howard Kung and Stanford University's Hanno Lustig also throw into question the assertion that the Treasury market was dysfunctional in that period--as asserted by the Federal Reserve when it launched its massive bond buying--or just rationally pricing the risk of a massive unfunded spending shock then being prepared in response to the health emergency.
It examines a shift in investor behavior in that period that raises questions about the "exorbitant privilege" the U.S. government has long enjoyed to borrow broadly on the global market even as federal budget gaps grow ever wider.
Instead, investors marked down Treasury securities, much as they did for bonds from other countries.
The researchers looked at the behavior of Treasuries securities during the pandemic shutdown of 2020, when yields shot higher not just for U.S. debt but for bonds issued by nations across the globe.
Meanwhile the U.S. Federal Reserve responded to the spike in U.S. Treasury yields as if it were a result of market dislocation, they said, buying up bonds to bring back order to the world's usually most liquid debt market as they had during the Global Financial Crisis.
https://www.inc.com/reuters/trust-in-us-treasuries-eroding-research-says.html
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