Debt Ceiling Part II

Bullets on the debt-ceiling charade:
1. No one expects the US to default. So why has the credit default swap (CDS) on the US risen in price? Answer: Bond market agents want to add a little insurance just in case American politics deliver a negative surprise.
2. The short end of the US Treasury curve is distorted by the charade. Market agents seek Treasury bills that mature beyond the October crunch date, so they can avoid a whipsaw.
3. US Treasury normal year-end cash balance is expected to be $350 – $400 billion. That is what it was in the previous year. Debt-ceiling politics are likely to take September cash under $100 billion and falling.
4. October is the crunch month. Will Treasury miss the October debt-service payment? No.
5. Will 50 million Social Security checks be delayed? No.
6. At the last minute, Congress will come up with temporary extensions to avoid a default. All the political statements and posturing are just that and nothing more.

This post was published at FinancialSense on 08/29/2017.