The US bond market is now facing a potentially testing July, if the impasse over raising the Federal debt ceiling fail to end up in a deal and then threaten the risk of a default by the Treasury as a result.
As the consensus in the bond market is for a last minute deal before the deadline on August 2, sentiment may be hit as rating agencies weigh in on the issue and the market is asked to take in new debt.
S&P’s has warned that it will slash the US credit rating to D, which is the lowest level in the event the debt ceiling is not raised and the country misses a debt payment. While the bond market takes it to be very unlikely, the ramifications of the Treasury missing a payment may be dire, given the widespread use of US bonds as collateral across financial markets.
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