"Hope you are well. Please can you explain why with all the talk of US default, long term bonds have still been rallying? I know they are usually a safe haven asset but when the concern is about them, how do they retain this status?"

David Fuller's view The short answer is that there might never be a numerical default on US Treasuries because the Federal Reserve can always print its own currency to pay ongoing interest or to redeem them when positions are not rolled forward. Of course this is a form of default by stealth as it undermines the currency's purchasing power. The debt ceiling default talk was partly for political purposes and mainly concerned other Treasury payments for which the government actually had temporary contingency plans.

The longer-term answer to your questions concerns the recent appeal of long-dated Treasury bonds when sovereign debt is at the centre of today's economic problems.

The actions of the investment herd will never lose their capacity to surprise, which is why many of us heed the messages of price charts, or have cause to regret it when we do not.

However in this instance you can be sure that people with a portfolio full of Treasuries would claim that it is perfectly logical. They would almost certainly be double-dip recession advocates and also feel that the USA is slipping into Japan's deflationary trap.

This view presumably assumes that the avowed claim and ongoing efforts of a Federal Reserve Governor, appointed to ensure that deflation does not happen in the USA, amount to nought.

If the US really is following Japan's path, then the decision to buy Treasuries will be seen as prescient, at least for a while. Personally, I maintain that the Fed's policies, along with runaway government expenditure, have seeded future inflation which will eventually drive long-term interest rates much higher.