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Investors Like T-Bills Despite Downgrade

NEW YORK ( TheStreet) -- Despite Standard & Poor's downgrade of U.S. debt from triple-A to double-A status, faith in T-bills is still strong.

Uncertainty in the health of the global economy has rattled investors, heightening the attractiveness of Treasuries as a safe haven asset. The benchmark 10-year note was last rising 25/32, diluting the yields to as low as 2.48% in early Monday trading.

The market had been anticipating the move by Standard & Poor's before the ratings agency made its downgrade announcement late Friday. Many analysts are noting that the decision does not make a fundamental different to how investors view Treasuries.

"The downgrade was not really new information," says Priya Misra, fixed income strategist at Bank of America. Ultimately, demand for Treasuries remains strong as we are in a risk-off environment, she explained.

"The downgrade was really just one more straw in a slew of information and events that indicate a weakened economy," said Alan de Rose, Treasury trader at Oppenheimer. "The market has broken into lower yields and will try to find a trading range there. In the absence of economic strength, yields will probably stay there."

Investor Warren Buffett has said that he would continue to buy Treasuries even at zero-percent interest rates. "I don't like it, but we'll do it," said Buffett on CNBC Monday morning.

Misra at Bank of America says she expects demand for 10- and 30-year notes to ease as the debate in Washington on how to deal with the U.S. deficit in the long term plays out.

"In the longer term, people have options to diversify away from the dollar, which will steepen the yield curve," she added.

Rating agencies Moody's and Fitch Ratings are expected to decide whether or not they also will downgrade U.S. debt. Their choice depends heavily on how a newly created bipartisan committee in Washington will address the nation's long term fiscal problems. Misra says that while further downgrades are likely, they will not be met with as much of a shock reaction as seen in markets this time around.

-- Written by Chao Deng in New York.

>To contact the writer of this article, click here: Chao Deng.

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