Tags: default | debt | markets | worry

Worry Levels About Default Rising for Financial Markets

By    |   Friday, 11 October 2013 08:05 AM

Financial markets are becoming worried, if not frightened, about the coming debt ceiling crisis and potential government debt default.

"Conditions in Washington, D.C. are not improving, we see nascent signs of financial stress and jitters are on the rise," wrote Morgan Stanley's Vincent Reinhart and Ellen Zentner, saying they "raised their assessment to level 3 Econ DEFCON," according to Business Insider.

"Financial markets, businesses and households remain on high alert as reflected in opinion polls, Internet searches, and yield moves at the front end of the Treasury curve."

Editor’s Note:
Obama Donor Banned This Message (Shocking)

DEFCON refers to the defense readiness condition, which was used in the movie "War Games." Five equals widespread complacency. One means economic demise is imminent.

The Daily Default Dashboard from the The Washington Post is "getting kind of scary" as of Tuesday, Oct. 8. Declines in the Standard & Poor's stock index, and increases in the S&P 500 volatility index, one-month Treasury bill yields, and credit default swaps for one-year Treasuries all indicate rising fear.

Only the Gallup economic confidence index and the betting site Paddy Power, where investors can bet on a default, reported no change.

The spike in short-term Treasury bills is most alarming, according to The Post. Fearing their payments will be delayed because of the crisis, investors, including managers of large money market funds, are starting to avoid short-term government debt, causing rates to increase.

It could be the beginnings of a liquidity crisis.

"As the X Date approaches without action on the debt limit," states a report from the Bipartisan Policy Research Center, The Post reported, "one risk is that buyers of government debt will be less likely to participate in Treasury auctions and, for those that continue to participate, more likely to demand higher interest rates, increasing the cost of servicing the existing debt. The amount of debt maturing during this period will increase as Treasury schedules additional short-term auctions in the days ahead."

Big money market funds like Pimco, Federated Investors and Fidelity Investors, are avoiding short-term Treasuries and hording cash in case their investors panic and demand redemptions, according to Reuters.

The liquidity crunch could be the funds' toughest test since the financial crisis of 2008.

"The market isn't (worried about) a long-term default. The concerns are about liquidity," Pimco bond fund manager Jerome Schneider told Reuters.

Editor’s Note: Obama Donor Banned This Message (Shocking)

Related Stories:

Blackstone's James: Congress 'Playing Russian Roulette' on Debt Ceiling

David Stockman: Washington Has Created 'Sundown in America'

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Financial markets are becoming worried, if not frightened, about the coming debt ceiling crisis and potential government debt default.
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2013-05-11
Friday, 11 October 2013 08:05 AM
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