Wall Street Braces for Debt-Ceiling Showdown - ABI

Wall Street is getting worried about the debt-ceiling debate in Washington, The Wall Street Journal reported yesterday. Bond traders, concerned about protracted sparring over the federal government’s borrowing limit, are pushing up the yields on short-term Treasurys. The three-month yield now pays more than a note whose term is twice as long. It’s a rare “inversion” that hasn’t happened in this corner of the market since the throes of the financial crisis. A brief default on government debt would hit short-term T-bills first, so they’ve typically turned volatile ahead of deadlines in Washington for lifting the government’s cap on borrowing. But the magnitude and timing of the moves — well before October, the Congressional Budget Office’s estimated deadline for a deal — suggest that investors are on edge about what’s to come. To be sure, analysts say that yields in the $1.7 trillion T-bill market can become jumbled up for reasons besides a debt debacle, such as when the Federal Reserve is in a cycle of lifting rates, as is currently taking place. When rates are rising, pushing up short-term yields relative to their longer-term counterparts, they are already more disposed to become inverted. But this is the first time these yields have inverted on a closing basis since the central bank began lifting rates in late 2015.

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