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The political battle over the US debt limit spread to the $ 22tn treasury market for the first time on Friday, as investors dropped short-term bills that matured as the US ran out of cash.
Treasury Secretary Janet Yellen said the yield on the mature Treasury bill on October 21 rose 0.07 percentage points to 0.14 percent early Friday, three days after the government ran out of funds. In Bloomberg Trading Data.
Later some buyers read the pped and helped keep the yield at a further 0.1 percent.
Failure to raise the federal debt limit by October 18 – when Yellen said the Treasury Department would end “extraordinary measures” used to buy time for lawmakers to work – would put the United States at serious risk of paying, reduce its creditworthiness and reduce its financial viability. Financial instability as costs increase.
The yield, which went in the opposite direction to the price of bonds or bills, also increased in other treasury bills that matured after October 18, with arrears on October 26 and 28.
“It’s likely to get worse,” said Mark Cabana, head of Bank of America’s US Rate Strategy. “Markets really start prices at the risk of delayed payments or technical errors when you’re out for about two weeks. Basically where we are at the moment. ”
Brett Barker, portfolio manager at asset manager TCW, said the move was made on Friday as part of an ongoing resolution to fund the U.S. government and avoid closing on Thursday. Some traders had hoped that raising or suspending the limit would be packaged together, something that did not happen.
“You’re seeing bills at lower prices in late October and early November,” Barker said. “It’s going to come under the wire. But we are confident that they will increase the debt limit. ”
The Treasury market, which has a value of more than t 4tn in short-term bills, was largely incomplete due to the debate in Congress to raise the threshold. Many investors and traders believe that a deal will be struck before the United States pays off its debt because of the political implications of paying.
Credit rating agency Fitch warned on Friday that if the debt limit is not raised in time, the chances of default will increase, although its analysts believe it could take some steps to pay off some of the Treasury’s measures.
“We see it reaching the treasury [deadline] Fitch analyst Charles Seville said the desire for US sovereignty and the ability to pay without limits to sovereignty has been raised as a major tail risk.
Republicans have so far refused to sign to raise the debt limit, forcing Democrats to do so on their own. Democrats, meanwhile, say there is not enough time to pass a measure without opposition support.
At this week’s hearing, Yellen called for a bilateral solution and said he would support the full removal of the border.
“It has nothing to do with future spending or tax plans that aren’t legislated. You need to pay your bills,” he told members of the House of Representatives on Thursday. “Republicans and Democrats need to share that responsibility.”
Federal Reserve Chairman J. Powell this week called on lawmakers to avoid debt defaulters, stressing that the U.S. Federal Reserve is capable of compensating for the limited economic or monetary losses as a result.
During another debt-ceiling showdown by Fed officials in 2013, a contingency plan was to buy the central bank’s defaulter and sell its own securities instead. “These are things we don’t really want to do,” Powell said Tuesday, pushing back those tactics.