Market Analysis

Bond markets are improving this morning as investors are betting that the impasse in the debt ceiling debate and a possible default and US debt downgrade will do so much damage to stocks that bonds may actually benefit despite the downgrade.  Recent polls of large fund managers indicate they they do not have plans to sell their US Treasuries even if the US debt rating is downgraded.  S&P downgraded Japan's debt  10 years ago in 2011 from AAA to AA and earlier this year downgraded the debt to AA-.  Japan's borrowing costs at 1.1% as of July of this year are much lower than the US (partly due, however to deflation in Japan which acts to increase the spending power of future interest earnings).  As the drama unfolds over the weekend it will be interesting to see if bond fund managers remain as steady in their own resolve if a downgrade occurs.

In economic news today, the 1st estimate of 2nd Qtr GDP came in up 1.3% which was worse than the 1.7% increase expected.  The Chicago Purchasing Manager's Index (PMI) came in at 58.8 which was slightly better than the 58.0 expected.  The Univ of Michigan Final July Consumer Sentiment Index came in at 63.7 which was very close to the 63.8 expected.