shine trader limited reports:
In an interview with the media, US Treasury Secretary Yellen said that if the US Congress fails to solve the debt ceiling problem within two weeks, the US economy will fall into recession.
She warned that US Treasury bonds had long been regarded as one of the safest assets and partially supported the reserve currency status of the US dollar. Therefore, “failure to fulfill the government’s debt repayment obligations will be disastrous” and “October 18 is the deadline for solving the debt ceiling problem”.
Some analysts pointed out that economists believe that if the U.S. government defaults on its debt, it will cause extensive damage through the soaring interest rate, weaken people’s confidence in paying its debts on time in the future, delay the payment of social security benefits for tens of millions of elderly people and military wages, and induce other countries to reduce the demand for holding U.S. debt and dollars.
It is precisely because the consequences of debt default are extremely serious that Yellen called for freezing or temporarily raising the debt ceiling at the congressional hearing last week, and suggested that Congress permanently abolish the debt ceiling.
Although Senate Republican leader McConnell sent a letter to US President Biden yesterday, reiterating that congressional Republicans do not support Democrats’ demands for raising the debt ceiling, Senate Democratic leader Schumer said that the Senate will hold a procedural vote on the debt bill on Wednesday US Eastern time as planned to try to suspend the debt ceiling, Republicans need to make concessions on this issue.
Wall street once mentioned that US President Biden was “anxious” yesterday, warning that there was no guarantee that the debt ceiling would be raised in time. As the risk of default for the first time in U.S. history loomed, he publicly accused Republicans and urged Congress to pass a bill to solve the debt ceiling problem this week. Biden said that Republicans threatened to use power to prevent the United States from defaulting, which was “hypocritical, dangerous and humiliating” and “get out of the way”.
Senate Republican leader McConnell countered that Democrats want to “spend unnecessarily” by forcibly passing a $3.5 trillion budget through a budget coordination process that does not rely on Republican votes:
“Since the Democratic Party wants to control the situation alone, please deal with the debt ceiling by yourself… The Democratic Party can’t find cooperation with the Republican Party when it wants to spend money, and kick us off when it wants to spend money… The core members of the Republican Party will not support raising the debt ceiling before the 2022 mid-term election.”
Last Wednesday, the house of Representatives voted to suspend the debt ceiling until December 2022, which will be voted by the Senate. But the next day, due to differences within the Democratic Party, the house of Representatives postponed the vote on the infrastructure bill.
Deutsche Bank recently predicted that Democrats are more likely to compromise with Republicans, either shorten the deadline for freezing the debt ceiling from the end of next year to the end of this year, or give up the “binding” of suspending the debt ceiling and Cr, and finally raise the debt ceiling through the settlement process. The combined probability of the two is about 67%. At the same time, the United States has a 7% probability of technical default.
While the debt ceiling is “pending”, short-term US bonds have been sold wildly since last week, and the yield of US bonds has increased. Federal Reserve Chairman Powell also said that once the US debt defaults, it will cause serious economic losses and the financial market will begin to fluctuate.
Fitch, a credit rating agency, also warned on Friday that although the U.S. Treasury Department has some temporary measures to repay debt, if the debt limit is not raised in time, the probability of default will increase and the U.S. sovereign credit rating will bear certain pressure.
Before midday trading in US stocks on Tuesday, the yield of 10-year US bonds rose sharply by 5.3 basis points, standing at 1.53%, returning to the high level since June this year. The two-year US bond yield rose by nearly 1 basis point, up 0.29%, again approaching the highest since the epidemic in March 2020, which was set last week.