I think majority of the answers (~60%) take a psychological comfort from the ‘fact’ that US will never default and that is what reflects in the idea that the markets will rebound post a default. Rationally speaking, a default leaves little difference between the treasuries and high yield bonds, and the returns are simply not comparable. I don’t think investors would respond in a similar manner if the default was expected from a company instead of the government. The expected recovery has more to do with the concealed belief that the default won’t take place. I think the US will neither default, nor can the markets rebound after a default.

Jimmy Dotiwala, CFA