Psychology of Bond Investors

We argue that as the United States takes on ever more debt and prints greater quantities of dollars, that buyers of our debt will demand higher rates of interest to compensate for greater risk.  In fact, our philosophy leads us to believe that rates would currently be spiking as Washington debates whether to raise the debt ceiling yet again or default on existing debt. Instead, rates are hitting close to multi-year lows. As a result, our critics have found a seemingly valid issue. However, we believe that there are strong market reasons that are holding rates low for now that do not invalidate our central thesis.
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