Comparing then versus now

Yea, US debts and deficits now matter and I don't say that because of the Moody's downgrade as S&P did this about 14 years ago in August 2011 and it certainly didn't matter then. I say it because markets clearly care now and have for the past few years. Understand that in June 2011, the Fed had just ended QE2 and rather worry about the credit implications then of a US downgrade a few months later, the Treasury market was more worried about a double dip recession and the 10 yr yield went DOWN in the year following the downgrade. This followed a trend where yields went UP during QE1 and QE2 because of the reflationary belief of policy. Fed rate policy was a real driver then too with zero interest rates (totaling 7 years and didn't get raised until 2015). Now, the long end of the yield curve continues to speak for itself and has been for the last few years and rate cuts have been more tweaks than anything else. Then too in 2011 we were still in a bond bull market. Today, we are three years into the bear, I believe.

On the day after the S&P downgrade, the 10 yr yield response was literally one day. On Friday August 5th, 2011, the 10 yr yield jumped 16 bps to 2.56%. On Monday August 8^th though, it plunged by 24 bps to 2.32%. The US dollar index also had a one day blip then. On that Friday it fell .7% to 74.6 and rallied by .25% on that Monday and one month later was unchanged. The US dollar today is of course much higher as yields are too but I think the trend is still higher for the long end and the post tariff foreign rethink of US assets is a brand new, big picture, really important new trend that I believe will continue for the coming years and that means a lower US dollar too.

I circled where 10 yr yield was in days before S&P downgrade on August 5th, 2011. The jump in 2013 was the taper tantrum.

This is what Moody's actually said: