Shine Trader Live reports:
On Friday, the bond market began a heated debate over a final date for the debt ceiling, which is expected to be between late October and early November. Goldman sachs has previously analysed two possible scenarios (see ‘How will the debt ceiling drama end? Goldman Sachs says there are two’).
Previously, Scott Skyrm, a US repo expert, noted:
“In past years, Congress has been able to reach a compromise before a ‘technical default’ spreads across the market, and this year, as we get closer and closer to the as-yet-unspecified ‘deadline,’ markets are starting to price in this distorted environment.”
n ICAP, a research firm, expects the “deadline” for the government to run out of cash and special measures to be around Oct. 22. Yields on 10-year Treasuries near the debt ceiling deadline were pushed higher as investors demanded more compensation for the increased risk. In this case, the peak of the yield curve moved from near early November last week to near mid-October in recent days.
When short-term yields rise, long-term yields weaken because of safe-haven demand. Alex Roever, a strategist at jpmorgan, wrote in a note Friday:
“The longer the debt ceiling issue goes on, the more real yields will rise and the coupon rate will continue to fall.”
article links：The looming debt ceiling could be as risky as 2011
Reprint indicated source：Shine Trader Limited Live information