“When you look at where investors can invest, they look at return and riskiness,” says Saboori. “Because of risk in the equity market, there’s been a flight to safety, to invest in an asset that keeps its value.” The US Treasury is one of the safest assets for investors, he continues. “For that reason, despite drop in rating, I don’t see any drop in US Treasury bonds.”
The dollar is the world’s reserve currency, which means central banks in countries across the world will continue to buy Treasurys, especially as other investments become increasingly risky. Even with the downgrade, the likelihood of default on T bonds is next to nothing, especially given the alternatives, says Saboori.
“Because of the bailout in Greece and the possibility of default in Italy and Portugal, there’s a fear that a similar downgrading will happen in Europe,” he says. “That makes US Treasury bonds attractive to rest of the world.”
