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US TSYS/RESEARCH: BMO analysts said on Tsy debt ceiling issue that they've
received "several 'what-if' questions", the "most common of which has been, 'Who
doesn't get paid first, if the limit isn't raised in time?' The short answer is
everyone, unless there is prioritization. For context, while we don't expect the
government will default or miss any payments, it is still interesting to
consider how much 'extra' room there might be for politicians to delay."
- They add Tsy Secy Mnuchin "is on record as saying that debt prioritization
(i.e. servicing Treasury debt, Social Security, and the military before paying
other expenses such as federal employees) is not an option, but Moody's chimed
in" Thursday "and noted, just in case, that 'prioritization would not affect our
sovereign rating. It's obviously not an ideal thing, but our rating speaks to
the risk of default or loss on government debt. If there were some non-debt
obligations paid later than they otherwise would, that's not the same thing.'
While there might be disagreement amongst the major bond raters, our biggest
takeaway from the comments from Moody's was that focus on this issue isn't
limited to bill investors as the market prepares for an eventful fall."