Treasury market still expecting a deal

The Treasury market seems to be taking the view that even if we go over the 17th October deadline a deal will be reached in the proceeding days to raise the debt ceiling until February. Thus, although the House Republicans look like they may have thrown a spanner in the works to raise the debt ceiling before the 17th Oct deadline, bond investors are sanguine. Ironically, if we do go over the debt ceiling deadline this could be the best outcome as it may force both sides to reach an agreement pretty quickly.

From a bond investors’ perspective, the yield on the 1 month Treasury bond has moderated sharply as the market weighs the probability of a default or failure to pay interest and principle payments if we do go over the deadline on Thursday as very low. Even if we go over the deadline the government could juggle its liabilities and would most likely prioritise debt repayments in order to avoid a technical default. Instead, we have seen the yield on bonds that expire in February 2014 jump a whopping 35 basis points since the open.

Treasury markets may see Oct 17th as a soft deadline; however the bond market obviously does not see kicking the can down the road to February as much of a solution to this crisis. Expect uncertainty to prevail.

Источник: Forex.com

15.10.2013