rally even in the event of a default. That's what happened in 2011 when the U.S. credit rating was downgraded.
That is partly because few markets offer the size and liquidity of the U.S. government bond market. And it is partly because few expect a default to last long.
"Missing a single payment or a series of social security payments is incredibly damaging, of course, but that's still very different from Argentina informing the world, as it did a few years ago, that it's defaulting on its debt," said Andrew Milligan, head of global strategy at Standard Life Investments.
"What it does, though, is that it slowly undermines the status of the U.S. dollar. If there was a period of time, even a day, when someone can't transact what he wanted to transact, that memory will last a long time. That's when you start to see people trying to make sure that they are diversified," he said.
Beneficiaries are likely to be government debt from advanced economies such as Japan, Germany, Switzerland and the UK.
Analysts at Societe Generale have advised clients that a U.S. debt default was improbable, but a rise in market fears that such a catastrophe could happen would in itself be a risk to hedge against.
Societe Generale analyst Eamon Aghdasi recommends investors buy volatility through options or other structures in the Brazilian real or Mexican peso.
Another hedge would be through Chile's rates markets, involving receiving swaps to protect against stress in debt markets, Aghdasi said in a note to clients.
Dan Fuss, who helps manage $190 billion in assets as vice chairman of Loomis Sayles, said he is hanging onto his longer-dated U.S. Treasuries.
Nonetheless, he's spent the past few days inundated with calls and emails from clients, particularly those from outside the United States.
"There's a very real concern about the U.S. and its weakening position in the world," he said.