Tags: Schwab | Treasurys | Safe | Haven

Charles Schwab: Treasurys Remain Safe Haven of Choice

Wednesday, 03 Aug 2011 12:09 AM

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Despite fears that the United States still risks a downgrade in wake of the debt-ceiling impasse, Treasury bonds and notes should remain the safe haven of choice among investors fleeing volatility in other markets, says Kathy Jones, fixed income strategist at Charles Schwab.

Concerns the government was going to default on its debt prompted ratings agencies to threaten downgrades on the nation's AAA ratings.

While the debt ceiling appears set to rise as the crisis ebbs, the damage the impasse inflicted on investor confidence in the U.S. coupled with the continued problem of high debt burdens may prompt ratings agencies to downgrade the country anyway.

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Don't ditch Treasurys if that happens, Jones says.

"There's still a risk that at least one agency downgrades," Jones says, according to Yahoo! Finance.

That won't matter as long as at least one agency maintains a AAA rating.

"Everyone knows we can pay, it was our willingness to pay" that's in question, Jones adds.

Plus economic uncertainty is not going anywhere, and that leaves government debt a good option due to its liquidity and safety, downgrades notwithstanding.

"It bodes well for fixed income. The (economic) numbers are coming in softer than expected," Jones says, pointing out spending cuts outlined in the debt ceiling agreement "will be supportive for the bond market."

The deal to raise the debt ceiling brought about a market-wide sigh of relief in that the a Lehman-style crisis was avoided, but don't expect it to make a dent in softer economic indicators, especially unemployment rates, which remain high.

"I would say this will have little effect if any," says Jeff Joerres, Chairman and CEO of staffing firm ManpowerGroup, according to CNNMoney.

"It's nice to clear one worry off the desk, but there are a lot of other things to worry about."

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