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It the U.S. goes into default because Congress fails to raise the debt ceiling, investors won't rush into bonds like they did in 2011, said Matt Tucker, BlackRock's head of iShares fixed-income strategy. Instead, Treasurys could sell off.
Many have compared this situation to the one in 2011, when Standard & Poor's downgraded U.S. debt because of "political brinksmanship." That tanked stocks, which sent people into Treasurys as a safe haven. So, investors paradoxically ended up buying more of the very asset class that S&P had downgraded.
But on Tuesday's "Futures Now," Tucker said that if the government is prevented from paying bills or spending money, the story could be very different.
(Read more: Reluctantly, market faces a real default threat)
"The difference here is that in 2011, we had a lot of concern about what was happening in Washington. This triggered a flight to safety, and Treasurys rallied," Tucker said. But, he added, "if we actually saw a default, whether it was a technical or otherwise default by the Treasury, that could be a very different reaction. You actually could see a more mixed response from Treasurys, even a selloff."
In fact, Tucker is already seeing holders of very short-term Treasurys demanding more yield to compensate them for the risk.
He noted that the Treasury bill maturing Oct. 31 is yielding more than the those maturing in January, which is quite unusual.
"The fact that the October T-bill is trading so high is a reflection of the uncertainty people have about the government making its payments," he said.
Washington's deadlocked negotiations have bled into the Treasury market, as we have been stuck in the same trading range for two weeks now.
Demand for Treasurys increased once the Federal Reserve announced on Sept. 18 that it would maintain its $85 billion worth of asset purchases, rather than begin to taper the pace of that program, as markets expected. Investors used this as a reason to buy Treasurys.
However, as we step into a three-year auction on Tuesday and a 10-year auction on Wednesday, prices have floundered, as investors become wary of the congressional debt ceiling debate. The impasse in Washington is pretty scary, because it could impinge upon the U.S. government's ability to pay its debt in the short term.
(Read more: Prices dip, investors wary before debt showdown)
Face it—Washington will take its standoff down to the wire. And the shutdown and debt ceiling debate should end up being a golden opportunity.
Gold remained quiet on Sunday night. This, after it traded in a range of over $20 on Friday that tested $1,326, the highest level since Tuesday, as it ran stops through from the mid-week highs. With a failure to follow through, gold settled to a floor close of $1,317.60.
Jim Rogers believes the finance industry is about to slip into secular decline. That's why the famed investor advises young people to pursue careers in farming rather than in finance.
"If you've got young people who don't know what to do, I'd urge them not to get MBAs, but to get agriculture degrees," Rogers told CNBC.com.
Many investors believe that once we are through the shutdown and the debt ceiling debate, all will be well with the market. I don't see it that way.
Over the last couple of months, we have seen some disappointing numbers that I believe will create strong headwinds as we get deeper into the fourth quarter.
First, job creation has not been good. ADP reported on Wednesday that it looks like 166,000 jobs were added last month. That number is below most expectations, and the number of jobs created in the previous month was revised down.
(Read more: Private jobs come in light for September: ADP)
Second, housing has suffered because of the rise in interest rates. New home sales for August came in at 421,000, below estimates of about 450,000. The projected number of sales is now about 450,000 units. To put this in perspective, that number was over 1.3 million at its peak in 2005.
The government shutdown means the Federal Reserve won't taper its quantitative easing program until 2014, several Fed experts contend.
"The longer the political showdown in Washington continues, the greater the chance that the Fed will defer tapering until 2014," Kathy Lien of BK Asset Management wrote in a Thursday note.
She provides two explanations for this: economic damage, and information loss.
First of all, the shutdown is having a direct impact on the economy. As Deutsche Bank economist Joseph LaVorgna writes in a recent note, "Our estimate is that each week of the shutdown reduces quarterly GDP growth by approximately one-tenth in the initial phase, but this drag intensifies toward two-tenths if the shutdown lingers into a third or fourth week."
Since the Fed only wants to taper if it feels the economy can withstand it, anything that weakens the economic recovery reduces the chances of tapering.
Second, because of the shutdown, the government is no longer producing economic data. Most damagingly, the Bureau of Labor Statistics will not release a jobs report on Friday.
And for Eric Rosengren, president of the Federal Reserve Bank of Boston and a voting member of the FOMC, this lack of information is a major concern. The shutdown "does put out further into the future the time when we can get a real assessment of where the economy is," he said on Wednesday, according to Reuters. "It would make me less willing to remove accommodation until we had good data."
For these two reasons, "If the shutdown extends beyond next week, it may be very difficult for the Fed to justify reducing asset purchases in December, and at this stage, we should forget about a move in October," Lien writes.
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