{"id":573723,"date":"2023-05-09T13:00:00","date_gmt":"2023-05-09T10:00:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/financial-markets-brace-for-default-as-biden-republicans-dig-in-on-debt-limit\/"},"modified":"2023-05-09T13:00:00","modified_gmt":"2023-05-09T10:00:00","slug":"financial-markets-brace-for-default-as-biden-republicans-dig-in-on-debt-limit","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/financial-markets-brace-for-default-as-biden-republicans-dig-in-on-debt-limit\/","title":{"rendered":"#Financial markets brace for default as Biden, Republicans dig in on debt limit\u00a0"},"content":{"rendered":"<p><img decoding=\"async\" src=\"https:\/\/thehill.com\/wp-content\/uploads\/sites\/2\/2023\/05\/stockexchange_050323_ap-seth-wenig_debtlimit.jpg?w=900\" \/><\/p>\n<div>\n<p>The partisan standoff over the debt limit, which hardened over the weekend when 43 Senate Republicans said they would not support a clean debt-limit increase, sets the stage for severe turbulence in the financial markets, experts warn.\u00a0<\/p>\n<p>The yield on Treasury bonds maturing next month spiked last week, signaling that investors are already preparing for the possibility that President Biden and Republican leaders in Congress won\u2019t reach a deal before the Treasury Department runs out of money next month.\u00a0\u00a0<\/p>\n<aside class=\"ad-unit ad-unit--mr1_ab\"><\/aside>\n<p>Biden will meet with the top four congressional leaders at the White House Tuesday to discuss how to avoid a default, but lawmakers expect little progress from the meeting. It\u2019s the first face-to-face meeting between Biden and Speaker Kevin McCarthy since Feb. 1.\u00a0<\/p>\n<p>There\u2019s growing pessimism in Washington and the financial markets that political leaders will negotiate a long-term deal by early June, the deadline set by Treasury Secretary Janet Yellen.\u00a0\u00a0<\/p>\n<p>If an agreement doesn\u2019t come together in the next month, congressional leaders will have to agree to a short-term extension of the debt limit to give themselves more time to negotiate.\u00a0<\/p>\n<p>Without a short-term agreement, the US would\u00a0go past the so-called \u201cX-date\u201d and face major turmoil in the markets.\u00a0\u00a0<\/p>\n<p>\u201cI genuinely believe there\u2019s a better-than-50-percent chance that there will be default, it will occur over a weekend and when the chaos it creates becomes obvious to all the players, they\u2019ll have to reach some sort of accommodation,\u201d said former Sen. Judd Gregg (R-N.H.), who previously served as Senate Budget Committee chairman and an advisor to Senate Republican Leader Mitch McConnell\u2019s (Ky.) leadership team.\u00a0<\/p>\n<p>\u201cThe potential is pretty dire,\u201d he warned. \u201cRight now, you don\u2019t have the leadership to solve the problem, that\u2019s the bottom line.\u201d\u00a0<\/p>\n<aside class=\"ad-unit ad-unit--mr2_ab\"><\/aside>\n<p>Gregg said McCarthy faces a challenge to his speakership if he brings a debt-limit bill to the House floor without major fiscal reforms, but the cuts that he\u2019s proposing don\u2019t have a chance of passing the Senate.\u00a0<\/p>\n<p>McConnell\u2019s support for a letter signed by 43 Senate Republicans declaring they will not support \u201cany bill that raises the debt ceiling without substantive spending and budget reforms\u201d has failed to move Democrats away from insisting on a clean debt-ceiling increase.\u00a0\u00a0<\/p>\n<p>\u201cI don\u2019t know what Democrats have to negotiate,\u201d said a senior Senate Democratic aide, who pointed out that Republicans agreed to raise the debt limit three times under former President Trump without drama. \u201cWe\u2019re not the ones being inconsistent.\u201d\u00a0<\/p>\n<aside class=\"ad-unit ad-unit--mr3_ab\"><\/aside>\n<p>\u201cAt the end of the day, a lot of their behavior is playacting,\u201d the aide said, predicting a spike in stock and bond market volatility will pressure Republicans into backing off their demands. \u201cThey have investments, too.\u201d\u00a0<\/p>\n<p>The aide, pointing to the downgrade of the nation\u2019s credit rating in the 2011 debt-limit standoff, said that this year\u2019s battle in Washington over the debt ceiling would also shake the financial markets.<\/p>\n<p>\u201cWe have in the past. I don\u2019t know why this would be different,\u201d the aide said.\u00a0\u00a0<\/p>\n<aside class=\"ad-unit ad-unit--mr4_ab\"><\/aside>\n<p>Financial markets are already starting to show signs of stress related to the impasse over the debt ceiling.\u00a0<\/p>\n<p>One-month Treasury bills maturing around a projected date in early June, when the government could run out of money, saw their yields spike to 5.76 percent last week.\u00a0<\/p>\n<p>Yields have climbed far above recent averages closer to 4.5 percent and significantly higher than the recent low of 3.3 percent in April.\u00a0<\/p>\n<aside class=\"ad-unit ad-unit--mr5_ab\"><\/aside>\n<p>\u201cThe Treasury bills curve <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>ears to imply risk of disruption in June, July, and October,\u201d Goldman Sachs chief economist Jan Hatzius wrote in a note last week to investors.\u00a0<\/p>\n<p>Treasury bills maturing in early June were trading at more than a 50-basis point discount compared to May and July at the end of last week.\u00a0<\/p>\n<p>\u201cInvestors are paying a healthy premium to own bills that mature in May while demanding hefty compensation to hold T-bills that are maturing in the first half of June,\u201d analysts for Wells Fargo wrote in a note to investors last week.\u00a0<\/p>\n<aside class=\"ad-unit ad-unit--mr6_ab\"><\/aside>\n<p>Wall Street insurance policies, which are known as credit default swaps, against one-year Treasuries hit a record-high spread of 1.77 percent late last week in a spike that was notable both for its timing and its size.\u00a0<\/p>\n<p>\u201cThere is likely genuine fear that a divided government and increased political polarization could make finding a solution less likely. Meanwhile, the dual threats of rising deficits (with larger federal payments, some indexed to inflation) and higher Treasury debt service costs also increase the chance of an accident, contributing to the higher perceived riskiness of owning US debt,\u201d Deutsche Bank analyst Steven Zeng wrote in a May 5 note.\u00a0<\/p>\n<p>Uncertainty in the Treasury market, which is already dealing with one of the fastest quantitative tightening cycles in decades, could spell more trouble for the U.S. banking sector.\u00a0<\/p>\n<aside class=\"ad-unit ad-unit--mr7_ab\"><\/aside>\n<p>Sen. John Cornyn (Texas), an advisor to the Senate Republican leadership team, said local and regional banks in his state worried about losing deposits.\u00a0<br \/>\u201cThis is a very dangerous situation. There\u2019s been a big shift in deposits to places people perceive as safer,\u201d he said. \u201cAll of them are nervous, our community bankers, our regional bankers. We need to try to calm this down.\u201d\u00a0\u00a0<\/p>\n<p>Cornyn said the possibility of a national default isn\u2019t helping to calm the jittery banking sector.\u00a0<\/p>\n<p>\u201cI think it\u2019s creating unnecessary anxiety,\u201d he said.\u00a0\u00a0<\/p>\n<p>One senior Senate Republican aide warned that a drop in demand for Treasury securities could trigger a broader market selloff.\u00a0\u00a0<\/p>\n<p>Treasury security auctions will likely become increasingly sensitive to the Treasury Department\u2019s looming X-date, analysts say.\u00a0\u00a0<\/p>\n<p>\u201cYields are elevated beginning with the June 6 maturity, which the Treasury in January suggested was the soonest the Treasury could exhaust resources under the debt limit. The yield is highest around mid- to-late-July maturities, when we think the Treasury will have exhausted resources under the debt limit if it has not in June,\u201d analysts for Goldman Sachs wrote.\u00a0<\/p>\n<p>Auctions scheduled for this Thursday for four-week and eight-week bills due to mature within this time frame could see some additional stress, as could auctions on May 25, June 8 and June 15.\u00a0<\/p>\n<p>The\u00a0Bipartisan Policy Center\u00a0argued\u00a0in an analysis published Tuesday that \u201cmanaging Treasury security auctions and meeting all obligations will become increasingly challenging as reserves dwindle.\u201d\u00a0\u00a0<\/p>\n<p>\u201cConcerns are also mounting that the country could find itself in a similar position to 2011, when Standard &amp; Poor\u2019s downgraded the U.S. from its AAA rating,\u201d the think tank said.\u00a0<\/p>\n<p>Yellen warned in an interview with ABC\u2019s \u201cThis Week\u201d that \u201cit\u2019s widely agreed that financial and economic chaos will ensue\u201d if Congress fails to act by the deadline.\u00a0\u00a0<\/p>\n<p>A report published by the Penn Wharton Budget Model Monday said the deadline to raise the nation\u2019s debt ceiling will hit sooner than previously thought because tax receipts in April fell below projections.\u00a0\u00a0<\/p>\n<p>Alexander Arnon, the director of business tax and economic analysis for the Penn Wharton Budget Model, said \u201cwe found, as noted by the Treasury secretary and by the Congressional Budget Office, that tax receipts in April came in quite a bit lower.\u201d\u00a0\u00a0<\/p>\n<p>\u201cThere was a drop off [in tax receipts] relative to what was expected and we are much closer [to default] than people had hoped earlier this year,\u201d he said.\u00a0\u00a0<\/p>\n<\/div>\n<p>Copyright 2023 Nexstar <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">Media<\/a> Inc. 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