What is the Huge Gap Between IRX and SPX Saying This Time

I find it interesting that $IRX, the 3-Month T-Bill Discount Rate Index (a safe haven), is camping out at the 2011 lows again, where it was last seen during the previous debt ceiling debates, S&P's debt downgrade and the market crash. The 3M T-Bill rate even made a new low last week. But the difference between now and mid-2011 is QE ended before the 2011 debt ceiling volatility. "Risk assets" didn't have $85 billion of stimulus coming in every month like today. But if Moody's or Fitch (2, 3) were to downgrade the U.S.'s credit rating like Standard and Poor's did after the Budget Control Act was signed (or S&P does another downgrade), that could be a negative catalyst for the market. The market crashed after S&P downgraded the U.S's credit rating. Last week, Chris Krueger of Guggenheim Partners told Reuters TV, "we continue to place a 40% probability that it will be a government shutdown on October 1, as well as a 40% probability on the U.S. entering into technical default scenarios towards the end of October, early November." So there could be some interesting events ahead. (Doing a quick post on the VIX next. I have a bunch of posts on deck.)

3 Month T-Bill Discount Rate Index (Red) vs. S&P 500 (Green) Since Late 2008
Source: StockCharts.com

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