The stock market is open today, but the bond market is closed for Columbus Day.
We’ve seen some people talk about how this is unfortunate, since the bond market would give us a good read on how markets view the situation in Washington.
The premise is that since a debt-ceiling breach involves, well, U.S. debt, than that’s where you need to watch for stress.
Don’t buy it though.
The stock market is great in that it tends to send a crystal clear message. When things are bad, stocks go down. When things are good, stocks go up. When things are really bad, stocks crash.
Bonds can be more subtle, especially in a situation like this. Bad news could easily result in LOWER U.S. borrowing costs, especially at the long end, as investors pile into debt for “safety.” And it’s not that ironic that investors would buy debt for safety in a debt-ceiling situation. A default on a short-term T-Bill doesn’t result in a default on Treasuries (at least right away), and a debt ceiling standoff could imply lower growth and lower inflation.
So basically, the bond market can be unclear in its message. Stocks rarely have this kind of ambiguity. Bad news.