Bond Markets Brush Off Tea Party Threats

Philip Klein of the DC Examiner correctly observes that bond markets are shrugging off the debt ceiling debate as political theater.

From the Treasury markets perspective, we've been down this very well-worn path a number of times and everybody knows the debt limit is getting raised, full stop, end of story," [a bond trader] said. "If there was a real expectation that the debt ceiling wouldn't be raised to accommodate continued debt payments, then you wouldn't have 10-year Treasury yields trading at 3.35. If there were any chance of delayed or defaulted payments, then we would see yields trading much higher than they are.

That's a relief. But it's also - kind of insulting to the Tea Party isn't it? Here are all these Tea Party conservatives fulminating that they really and truly might refuse to raise the ceiling -- and the bond markets shrug off these fearsome threats as utterly non-credible, so much empty air. How can that be so? The Tea Party tells everybody that it constitutes a powerful independent force, not answerable to the GOP leadership, disdainful of traditional Republican interests and donors. The bond market, it turns out, believes none of this. Tea Party Republicans are Republicans after all, answerable to the Republican leadership, and through the leadership to Republican donors, which is to say -- to the bond market itself.

So how has the Tea Party gotten even this far? After all, if a group of left-wing Democrats were threatening to block a debt ceiling rise and force a debt default unless they got a big tax increase on the rich, you can imagine that all hell would be breaking loose on Capitol Hill. We'd be hearing a lot about the full faith and credit of the United States, the solemn covenant represented by the government's bonds. But of course bond traders like what the Republicans are demanding. So they keep preternaturally calm in the face of threats that -- under other circumstances -- would be treated as the equivalent of sedition.

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