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The Financial Crisis: Five Years Later

Bond Trader Bill O'Donnell on Fear of a Treasuries Crash Post-Downgrade


Aug. 5, 2011: Standard & Poor’s downgrades its credit rating for the U.S. to AA+

“A stomach churn for the ages”

After S&P, there was a massive frenzy of fear. The downgrade happened on Friday afternoon. Everyone was waiting to see how the world would react when the markets opened Monday morning. As head of U.S. Treasury strategies at the Royal Bank of Scotland (RBS), I was especially concerned about what would happen at the auctions for U.S. Treasuries on the following Tuesday and Wednesday. I was on the phone with my colleagues all weekend. We were bracing for the worst—that foreign nations would no longer want to buy U.S. debt because it wasn’t triple-A. The message to our traders on Monday morning was, “Don’t panic, just buy Treasuries.” The Dow that day fell 634 points, the largest one-day decline since 2008. It was a stomach churn for the ages. But then, a surprise: At the Treasuries auctions, buyers looked past the downgrade. Money poured into the safety of U.S. Treasuries despite the lower credit rating. We saw big demand from foreign and domestic investors. Rates on the 3-year note hit record lows. At times it felt like ’08. Our blood was up. It’s crazy to see what markets do. — As told to Matthew Philips


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