In a note published to clients late on Wednesday, JPMorgan
said it expected both the debate over the debt ceiling as well
as the one on the federal funding bill to run "dangerously
close" to their final deadlines.
The bank said its U.S. rates strategy team expects the
Treasury could run out of available resources by the middle of
August.
The debt ceiling is the maximum amount the U.S. government
can borrow to meet its financial obligations. When the ceiling
is reached, the Treasury cannot issue any more bills, bonds or
notes. It can only pay Treasury bills (T-bills) through tax
revenues.
"Signs of stress typically start in the T-bill market 2-3
months before the X-date given money market funds (MMF), which
are large holders of T-bills, will begin to more actively
advertise that they don't hold any bills that mature over those
dates," JPMorgan said.
Treasury Secretary Janet Yellen is expected in the next few
days to revise the X-date - or the date by which the federal
government can no longer meet all its obligations in full and on
time absent actions by Congress - which is currently early June.
U.S. credit default swaps, market-based gauges of the risk
of a default, this month hit their highest level since 2012 . Those contracts are denominated in euros, as
investors lower exposure to dollar-denominated assets.
(Reporting by Karin Strohecker; editing by Dhara Ranasinghe)
LONDON, April 20 (Reuters) - JPMorgan expects the U.S.
debt ceiling to become an issue as early as next month with the
Wall Street bank ascribing a "non-trivial risk" of a technical
default on U.S. Treasuries.
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