Most insurance companies are required by law to hold a huge portion of their portfolios in very safe and very liquid securities. They won’t be forced to sell U.S. bonds in the event of a downgrade, however, because they’re almost always allowed to simply assume the safety and liquidity of U.S. Treasury’s—regardless of how they’re rated.

Take New York’s life insurance law: It issues blanket permission for life insurers to own obligations issued by “the United States of America or any agency or instrumentality thereof.” There’s no ratings requirement at all.

Money market funds are required to hold highly rated securities. Even so, they are unlikely to be forced to sell in the event of a U.S. rating downgrade.

Regulations allow for the securities held in money market funds to include a broad band of ratings—from triple-A to single-A. The U.S. would have to be downgraded several notches—far beyond what either S&P or Moody’s have discussed—before regulations would require money market funds to shun Treasury’s.

Wells Fargo conducted a survey of the largest public pension funds in the U.S., and found that some funds might be forced to sell Treasury’s in the event of a rating downgrade.

“Even so, federal, state and local retirement funds hold only around 3 percent of the outstanding U.S. government debt, so any forced selling at public retirement funds would likely have a negligible effect on the broader market for Treasury’s,” the Wells analysts concluded.

What’s more, pension fund experts say that if the market becomes disorderly and prices are pushed too low, it’s unlikely that the fund managers would sell. They could hold the funds and wait for calm to return to markets.

It seems likely that the German bonds (bunds) would rally, at least on a relative basis to U.S. debt, in the event of a downgrade. Some investors will seek shelter and diversification, and Germany is one of the few nations that can offer a safe alternative to U.S. bonds.

The relative small supply of German debt could create a squeeze, however, if investors push into German bonds.

It is possible that a decline in the value of U.S. Treasury’s could cause some money market funds to “break the buck” —see their net asset value decline below a dollar. This could cause some nervous investors to withdraw their cash, especially if they anticipate needing it in the short term.

But investors who do not need the liquidity would probably be wise to ride out the storm, since it’s unlikely that the funds would stay below a dollar for very long.

It’s almost certain that large, too-big-to-fail banks would get downgraded following the downgrade of the U.S. credit rating. These banks currently enjoy higher ratings than they would if not for the perception that they will be bailed out by the government if they get in trouble. If the U.S. debt is riskier, so are the banks backed by the U.S.

If it should happen, this could pose problems for some banks, because it would likely raise their borrowing costs. The most thinly capitalized banks might become distressed.

A downgrade of the U.S.’s debt rating could cause a sell-off on the riskiest side of the bond and stock markets. Investors who discover that their portfolios of triple-A rated U.S. Treasury’s are now considered technically riskier might decide to rebalance to reduce risk.

The easiest way to do this would be to sell the riskiest portion of your stock and bond portfolio. Since you’ve lost the safe side of your portfolio, you ditch the risky side.

U.S. Treasury’s are used to collateralize all sort of obligations, including margin requirements, short-term loans, and derivatives.

Counter-parties may be able to require those on the other side of their transaction to provide more of the downgraded bonds as collateral-backing obligations. This could slow some transactions and make markets less “efficient” than they might be otherwise.

Perhaps the most surprising result of a downgrade could be a rally in U.S. Treasury’s.

Investors selling off riskier assets would need to put the proceeds somewhere, and bonds are likely to benefit. The need to provide more collateral to counter-parties would also increase the demand for Treasures.

The old rule that investors buy Treasuries when seeking liquidity and safety might still apply, creating the very odd effect of U.S. bonds rallying in the face of a downgrade.

The U.S. Treasury and the Federal Deposit Insurance Corp. (FDIC) could provide backstops to almost anything they see as irrationally under stress, such as money market funds, bank debt, and insurance company obligations.

The traditional arguments about moral hazard wouldn’t apply, since the government likes the kind of moral hazard that encourages people to buy its debt.

The most important thing to keep in mind is that there’s a technical term for people who tell you that they know with 100 percent certainty what will happen in the event of a downgrade.

We call them “liars.”

We’re in unprecedented territory, so all we have are educated guesses. Investors need to be cautious, agile and well-informed to protect themselves from unexpected outcomes.

The one thing we know for certain is that there are likely to be surprises ahead.