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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
US
There are some signs of market distress as a result of debt default concerns, but the largest distortions appear limited to short-dated bill yields / auction dynamics and illiquid credit default swaps. There have been large intraday movements due to developments in negotiations (like Friday's talks "pause" spurring risk-off), but broader markets appear largely calm as the overwhelming expectation is that that a deal will be reached and the US will avoid default.
- An informal MNI client poll run early last week saw no respondents expect an outright US debt default, with an 80/20 split between those expecting a short-term stop gap versus a long-term debt ceiling increase. (More in our Fed Balance Sheet Tracker published Friday). That said, all respondents saw an outright default as USD-negative; none saw it pushing Tsy yields higher (vast majority saw lower yields, some saw mixed curves).
- A few analysts' takes: Wrightson ICAP saw last week's cash flow as "very bad relative to our projections" with a cash balance of <$20B in the week of June 9, though extraordinary measures / cash management bill issuance possibly providing a cushion (ie $19B of cash on hand on June 9, plus $7B of extraordinary "headroom").
- They note though that the debt limit could conceivably become "binding" by June 1, creating uncertainty about Thursday's announcements for the upcoming week's bill auctions (which would settle June 1).
- Goldman Sachs sees Treasury cash "likely" falling under $30B by June 8-9, with "even odds that the Treasury exhausts its funds entirely at that point".
- Their scenarios include a "full-fledged deal that suspends the debt limit to early 2025 along with spending caps" at 70%, a 15% chance of a short-term extension, 10% of fudging payments/borrowing caps temporarily, and 5% it revises the projected deadline to July if cash flows are better-than-expected.
US 1Y and 5Y Credit Default Swap, bpsSource: BBG pricing
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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