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Investors are concerned that the United States may default on its debt.
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The Financial Times reports that demand for debt insurance has skyrocketed, while demand for US Treasuries has fallen.
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The Congressional Budget Office warned that the United States may fail to meet its obligations in July this year.
It seems that investors are becoming more concerned about this Confrontation over raising the US debt ceiling With a deadline approaching before the US defaults this summer.
Five-year credit default swaps on US government debt — one of the most traded forms of debt insurance — have hit their highest price since 2012, financial times reported, reflecting investors’ desire to protect themselves against potential default.
Meanwhile, demand for US T-bills declined, a sign that investors tend to shy away from government-issued debt as the deadlock over raising the debt ceiling persists. Prices for treasury bills that expire in late summer – around the same time as A Debt default can happen It fell below other risky short-term debt instruments, the Financial Times reported.
Although experts say it’s unlikely, a debt default could be catastrophic for markets, with US Treasury Secretary Janet Yellen describing such an event as “inconceivableShe warned that markets could easily be capsized by liquidity problems as bondholders, companies and foreign governments sell their holdings, which could lead to a financial crisis.
But time is running out for policymakers, who are still holding out They spar over potential spending cuts as a condition for raising the debt ceiling. Date X – when the US fails to meet its debt obligations – could fall between July and September of 2023, according to projections from Congressional Budget Office.
Meanwhile, the US Treasury has intervened in “extraordinary measures” to ensure that the government can continue to honor its obligations, stopping an immediate crisis from hitting the economy.
House Republicans are said to be starting a debt ceiling package and could be close to striking a deal with Democrats, but the proposal includes massive spending cuts, Punchbowl News reported, including Banning items on the Democrat agenda such as student loan forgiveness.
Read the original article at Business interested