US national dept causing more anxiety
Politico reports that the problem of the US national debt limit is causing anxiety on Wall Street, as American legislators have yet to reach an agreement to raise the ceiling from its current level of $31.4 trillion. If a solution is not found soon, the US Treasury may run out of the ability to pay bills and service public debt as early as this summer. While there is no immediate panic in the market, stress is accumulating, particularly as serious contradictions in the positions of American legislators are becoming known. Last week, the cost of insuring government bonds against default for a year rose to 100 basis points (bp), surpassing levels seen in 2011 when a delay in solving the ceiling problem led to the first-ever decline in the US rating by Standard & Poor’s.
Goldman Sachs economist Alec Phillips comments that there is a view that the market is not scared enough by the situation, which is to some extent true. However, fears are even greater now than they were in 2011. JPMorgan experts see a “substantial” risk of at least technical default on public debt in the US. The reaction of Wall Street to the problem of potential default is critical since large financial institutions are the primary buyers of US Treasuries issued by the American Ministry of Finance to finance the government. If they begin to leave the market, government bond rates will rise, creating serious problems for the government, business, and consumers.
According to BofA Global Research experts, the US Treasury is expected to run out of opportunities for borrowings by August 1st, and this could even happen earlier – at the end of July. Previously, BofA analysts predicted that the Ministry of Finance would run out of money by mid-August. Goldman Sachs notes that the deadline for increasing the national debt limit is approaching faster than expected, and the associated uncertainty is starting to unnerve the markets. Goldman predicts that the deadline may come at the end of July, with a possibility of it being shifted to the beginning of June if the tax revenues of the Ministry of Finance do not justify expectations.
Experts are expecting a statement from US Treasury Secretary Janet Yellen regarding the timeline for the functioning of the Ministry of Finance without increasing the public debt limit within the next two weeks.
We recommend to bid shorts on US stock index.