The United States has approximately 168 hours, or exactly one week, until it may be unable to pay its debts if debt ceiling negotiations do not produce a breakthrough.
Treasury Secretary Janet Yellen indicated that on June 1 the federal government may not have enough cash on hand to pay all of its commitments, implying a de facto default with unforeseeable consequences.
Latest Developments On The Debt Ceiling Front
- After declaring a deadlock on Tuesday, Bloomberg reported that White House and GOP negotiators are scheduled to restart debt ceiling discussions on Wednesday, according to a source familiar with the situation.
- “History tells us that the US will wrestle with this notion of default but come the 11th hour it gets resolved,” said International Monetary Fund’s Kristalina Georgieva at the Qatar International Forum on Wednesday.
- The two sides seemed to be at odds on Tuesday, after a two-hour conversation between White House and GOP negotiators, according to Rep. Garret Graves (R-LA), one of House Speaker Kevin McCarthy‘s top negotiators.
- Investors have demanded greater premiums for holding U.S. debt, especially those with the biggest default risk. T-bills due on June 8 have yields in excess of 5.7%, while bills maturing on May 30 have yields in the neighborhood of 2%.
- Some House Republicans even questioned the urgency imposed by Yellen’s deadline for when the government would begin skipping certain debt payments.
- The U.S. Treasury will have to cope with $101 billion in payments on June 1, mostly for Medicare, military pay, military and civil service retirement, veterans benefits, and supplementary Social Security, as well as $117 billion in T-bill maturities.
Risk Off Emerges Across Markets
The investors’ tolerance for debt ceiling negotiations appears to have reached a breaking point. Stocks sold off Tuesday, and both Asia and European markets extended declines on Wednesday.
The S&P 500, which is tracked by the SPDR S&P 500 ETF Trust SPY opened 0.5% lower on Wednesday, while the Invesco QQQ Trust QQQ, which tracks the Nasdaq 100 index, dropped by 0.7%.
Stock Heatmap for S&P 500 Index On May 24, 09:38 AM ET
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