Why Bonds are Rallying

Another day, and still no agreement on a 2011 budget
in Congress. Surprisingly though, the stock market is not really being
affected by the impasse. Sure, the major indices are down slightly again
today, but I think we can all imagine that it could be much worse.

Treasury bond prices have been choppy, with big $3 price swings on the
chart of the iShares Barclays 20+ Year Treasury Bond ETF (TLT) in July. But
overall, bonds are holding up well, and this tells us clearly that no one
expects the U.S. government to default on its bond payments.