(Bloomberg News) For all the anxiety among politicians and their constituents over playing chicken with the debt ceiling and the prospect of the first-ever downgrade of U.S. debt, the people with the most at stake made more money buying Treasury securities in July than any month this year. Actually, they made a fortune, or $183,000 for every $10 million invested.
While commentators bemoaned America's lost respect around the world, investors from Argentina to New Zealand snapped up Uncle Sam's bonds in the $9.34 trillion market, driving yields on 10-year notes -- a benchmark for everything from mortgage rates to corporate debt -- to the lowest levels since November. U.S. government debt returned 1.83 percent in July, about three times more than the rest of the global sovereign bond market, Bank of America Merrill Lynch index data show.
"The bond market saw through the debate and saw that it would have to be resolved," said Mark MacQueen, a partner and money manager at Austin, Texas-based Sage Advisory Services, which oversees $9.5 billion. "The market expected a resolution, which is less spending, hitting future growth, which is not good for stocks but is good for bonds."
The Senate voted today to raise the nation's debt ceiling, currently $14.3 trillion, for the 79th time since 1960, before missing a payment. As a bonus to bond investors, the government will reduce spending by $2.4 trillion or more.
Target Rate
While an increase in the borrowing limit would avert a default, it may not be enough to save the U.S.'s top AAA credit rating. Bond yields show investors are also concerned that the reduction in outlays by the government will weigh on growth at a time when reports on everything from manufacturing to jobs show the economy is weakening.
Interest-rate futures signal traders are pushing back expectations for when the Federal Reserve raises its target for overnight loans between banks to 2013. The Standard & Poor's 500 Index lost 2.03 percent in July, the worst performance since August 2010.
"Regardless of the rating, Treasuries are going to be seen as the safe haven," said Matthew Freund, a senior vice president at USAA Investment Management Co. in San Antonio, where he helps oversee about $50 billion in mutual fund assets. "The U.S. remains one of the strongest, most dynamic economies in the world."
The benchmark 10-year Treasury note's yield fell as low as 2.67 percent today, down from 3.014 percent on July 22, when President Barack Obama complained that he had been "left at the altar" by Republicans who walked away from talks to avoid a default.
Yield History