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Debt Ceiling: Investors Aren't Worried

A big fear surrounding the debt ceiling debate is that bond investors will freak out. They'll worry that the country is about to default on its debt, and will demand higher interest rates to lend money to the U.S. government.

That would indeed be a bad outcome. It would force the U.S. to spend more money on interest payments, and less on everything else.

But so far, there's no sign that investors are worried. On the contrary, the yield on six- and 12-month Treasury bills hit all-time record lows this week, according to Bloomberg News.

In other words, investors are more eager than ever to make short-term loans to the U.S. government.

Yields on longer-term bonds are also low by historic standards.

It's true that Fed policies are putting downward pressure on interest rates. Still, the Fed's $600 billion bond-buying program (quantitative easing) is a small fraction of the $9.7 trillion in U.S. debt held by the public.

In other words, if investors do get nervous about the debt ceiling, quantitative easing won't be enough to keep interest rates on U.S. debt from shooting up. But so far, that hasn't happened.

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