US debt sell-off ahead of key vote
Concern that the US Treasury may delay debt payments next week pushed yields on short-term bills to new peaks on Thursday, as traders and investors sold down their holdings ahead of a crucial vote in the House of Representatives.
With uncertainty still surrounding the prospects of a congressional agreement to lift America’s borrowing limit by August 2, Wall Street’s leading chief executives wrote to President Barack Obama and lawmakers to warn of the “very grave” consequences of a default and urged the politicians to cut a deal “this week”.
The yield on the bill that matures on August 4 , which returned no interest earlier this month, rose to 20 basis points. In a rare “inversion” of the short-term yield curve, it was deemed more risky than the bill maturing in three months’ time, which now yields 7 bps.
A bill trader said his desk dumped all of their Treasuries maturing in August because “no one is sure what will happen”.
All eyes in Washington were on the outcome of a House vote on a two-stage plan, with a defeat threatening to further complicate the path to a deal. The main difference between the Democratic and Republican parties remains whether to extend the debt limit beyond the 2012 presidential election, as the White House prefers, or have to raise it again early next year.
Lloyd Blankfein of Goldman Sachs and JPMorgan’s Jamie Dimon were among 14 bank and insurance chief executives who signed the letter along with Rob Nichols, the head of the Financial Services Forum, the umbrella association for the biggest financial groups in the US.
The letter said a default, still perceived as unlikely, or a downgrade from triple A, which analysts believe is increasingly likely, “would be a tremendous blow to business and investor confidence – raising interest rates for everyone who borrows, undermining the value of the dollar, and roiling stock and bond markets”.
By Michael Mackenzie,Tom Braithwaite,James Politi in New York, in Washington
With uncertainty still surrounding the prospects of a congressional agreement to lift America’s borrowing limit by August 2, Wall Street’s leading chief executives wrote to President Barack Obama and lawmakers to warn of the “very grave” consequences of a default and urged the politicians to cut a deal “this week”.
The yield on the bill that matures on August 4 , which returned no interest earlier this month, rose to 20 basis points. In a rare “inversion” of the short-term yield curve, it was deemed more risky than the bill maturing in three months’ time, which now yields 7 bps.
A bill trader said his desk dumped all of their Treasuries maturing in August because “no one is sure what will happen”.
All eyes in Washington were on the outcome of a House vote on a two-stage plan, with a defeat threatening to further complicate the path to a deal. The main difference between the Democratic and Republican parties remains whether to extend the debt limit beyond the 2012 presidential election, as the White House prefers, or have to raise it again early next year.
Lloyd Blankfein of Goldman Sachs and JPMorgan’s Jamie Dimon were among 14 bank and insurance chief executives who signed the letter along with Rob Nichols, the head of the Financial Services Forum, the umbrella association for the biggest financial groups in the US.
The letter said a default, still perceived as unlikely, or a downgrade from triple A, which analysts believe is increasingly likely, “would be a tremendous blow to business and investor confidence – raising interest rates for everyone who borrows, undermining the value of the dollar, and roiling stock and bond markets”.
By Michael Mackenzie,Tom Braithwaite,James Politi in New York, in Washington
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