Agency Debt Enjoys an Unlimited Implicit Guarantee

The single most important fiscal policy goal today for the Treasury Department, Congress and the Fed is to maintain a balance of confusion over the true level of support they are prepared to give to America's fiscal obligations. Holders of Agency Debt must have an iron-clad faith that the US stands behind these bonds to precisely the same degree as sovereign debt. The holders of Treasury Debt must be positively certain that their paper is definitively senior to agencies.

The above brilliant obfuscation isn't sustainable, but for the moment one hopes that debt customers from both camps will take comfort from that part of the contradiction that favors their flavor of investment.