During the first trading session after Standard & Poor's downgraded its rating of U.S. debt from AAA to AA+, investors got out of stocks and parked their money in ... U.S. Treasury bonds.
Was that odd?
"Outside of the fact that the U.S. got downgraded and Treasuries are rallying today?" asked Scott Burns, director of exchange-traded fund analysis at fund monitoring firm Morningstar. "Not really. That's what tells me the selloff has very little to do with the downgrade.''
Indeed, demand for the U.S.' bonds drove the price of two-year Treasury notes down to a yield below one-quarter of one-percent per annum.
Which showed that, in the end, there is no substitute-even at AA+-for safekeeping of cash other than Treasury bonds.
As a safe haven, "you cannot replace something with nothing," said Mohamed A. El- Erian, co-chief investment officer at Pacific Investment Management Co., which runs the largest mutual fund extant, the Total Return Fund.
"There is nobody else to pop in and replace the Treasury market as the most liquid and deepest market," El- Erian said in an interview with CNN Money.
"The Treasury trade is being driven by fear, not love," said Russ Koesterich, global head of investment strategy for BlackRock's exchange-traded fund business, iShares.
It's also being driven by lack of alternatives. "The fact remains that given the level of uncertainty among market participants, Treasuries have been the flight to safety right now," said Dan Greenhaus, chief global strategies for BTIG, which provides global trading services to mutual funds.
Which made demand for Treasuries-particularly with long-term maturities-extremely strong, even after the downgrade.
Early in the post-downgrade retreat, the BlackRock iShares Barclays 7-10 Year Treasury Bond Fund and the iShares Treasury Inflation Protected Securities Bond Fund, for instance, were big gainers, Greenhaus noted.
Municipal bonds, he said, were facing "a tough day" as were high-yield bond funds. Among those hit: iShares' Barclays 1-3 Year Credit Bond Fund, the iBoxx High Yield Corporate Bond Fund and State Street's SPDR Barclays Capital High Yield Bond Fund.
DWS Investments, a unit of Deutsche Bank Group, however, noted that municipal bonds had defied investor sentiment all year.
"Unlike the federal government, the states are legally required to balance their budgets annually. They can't roll a deficit. They have a history of managing through volatile economic periods," said Philip G. Condon, head of municipal bond portfolio management and bond analysts at DWS.
The lowest rated states: California and Illinois. Yet, at A- and A+, by the S&P standard, they are "still in solidly investment-grade territory."
Outside of bonds, mutual funds and exchange-traded funds performed fairly predictably. Now, 38% of all U.S. trading in equities can be attributed to ETFs, Koesterich said.
ETFs now are regarded as "a liquid way to manage risk," he said. This is the case whether the market down up 624 points, as it did Monday, or up 429 points, as it did Tuesday, or down 520 points, as it went Wednesday.
Direxion Daily Russia Bear 3x Shares, for instance, gained 22.9% in the first two hours of trading Monday. The fund tries to triple the returns generated by the inverse of the DAX Global Russia Index.
But the next day, when the Dow Jones Industrial Average gained back two-thirds of its Monday losses, the Russia Bear 3x Shares lost 12.5% of their value.
Other top gainers at the outset of Monday: C-Tracks Citi Volatility Index TR ETN, an exchange-traded note that tries to capture the implied volatility of U.S. stocks with large capitalizations; and, the VelocityShares Daily 2x VIX exchange-traded notes, which try to produce two times the results of the CBOE Standard & Poor's 500 Volatility Index Short-term Futures Index.
Losers: Funds that tried to triple the returns of the S&P Latin America Index, the MSCI Emerging Markets Index and the DAX Global Russia Index.
For the long haul, the "the least bad place" to put client money, in the minds of Contango Capital Advisors, was (and is) ... U.S blue chip stocks.
"What we've seen in the last 10 days or so, is a dawning realization that most of the real economies of the world are slowing down," said Contango CEO George Feiger.
Emerging markets, from Brazil to India to China, are seeing their growth slow down, to more like 5%. Western investors have priced assets in these nations as if they would grow at 10% per annum.
The U.S. economy, by contrast, is a "mush economy," Feiger said. It will mush along and its best stocks "by that comparison [will be viewed as] the least bad place" to put money in.
Sovereign debt problems in both the U.S. and Europe are now being understood as chronic, Koesterich said.
Pacific Investment Management Co., better known as PIMCO and home to both El-Erian and money manager Bill Gross, dumped U.S. Treasury holdings from the Total Return Fund in February.
Now what's happening is what El- Erian calls a "synchonized global slowdown." The European debt crisis followed by the downgrade of U.S. debt has dealt "yet another blow to fragile business and household confidence."
That is undermining the "animal spirit" that "makes a capitalist system invest and take risk," he said.
Worst is the fractious nature of the leadership of the U.S. government, as called out by Standard & Poor's in its downgrade.
"Regardless of what the ratings agencies said, you realized this was a ship of fools," Feiger said of the Congressional leaders who could not come up with a coherent and cohesive approach to cutting spending and limiting the amount of debt the nation will carry, by any significant amount.
"These people are willing to do anything for their political advancement, regardless of the impact on the economy. And this is the message the world took from" the debt ceiling dance, Feiger said.
Now the question is whether the country's leaders will regard this, in El-Erian's term, as a "Sputnik moment," put the "massive blame game" behind them and "start to claim the future as opposed to arguing about the past."
In the meantime, the world financial system will have to reorganize itself. That could be around Treasuries, again. Or not.
"So there is a legitimate question out there: Does the system simply renormalize and everything operates again with a double A plus in the middle-or do you accelerate a journey toward a multipolar world?," he said.