The S&P Bond Rally

In a column for the National Post, I explain why the current price of government bonds repudiates the S&P downgrade of American debt:

If I were Standard & Poor's, I'd be damn embarrassed. On Friday, the famous bond-rating services took the momentous step of downgrading the sovereign debt of the United States of America, a country that has paid interest on its loans punctually since 1789. All weekend, the world awaited market reaction. On Monday, the markets did react: with an explosive rally in US Treasury bills.

Now that's a repudiation.

...

In the overheated politics of Washington, everything is subsumed into domestic politics. If markets rise, Washington wrangles over whether President Obama or the Tea Party should get the credit. If markets tumble, Washington argues whether President Obama or the Tea Party deserves the blame.

But this weekend's crisis seems more driven by fears over the future of the Euro than anything else. The European Central Bank has now been obliged to intervene to support the bonds - not of little, absorbable Greece - but of Spain and Italy. Markets have reason to fear that if the US banks that crashed in 2008 were too big to fail, Spain and Italy may be too big to save.

Click here to read the full column.