Center for Strategic Assessment and forecasts

Autonomous non-profit organization

Home / Economy and Finance / Causes and nature of the current crisis / Articles
Financiers are actively preparing for U.S. default
Material posted: Publication date: 12-10-2013

Democrats and Republicans in the U.S. continue to negotiate on the budget and the debt ceiling with an uncertain outcome. However, the financial sector does not want to risk and is already preparing defensive measures in case the US still allow it to default on its obligations. The company avoids husbando maturing in October—November, the yield on which over the last week has jumped three times.

The main proof of the growth of investor concerns was the increase in interest rates on short term government bonds. Thus, the yield of securities maturing in October and November exceeded 30 basis points, becoming the highest since the end of 2008. A week ago, a similar percentage of papers was three times lower. The demand for short term gosobraztsa the U.S. also fell. These bonds — one of the most important elements of the global financial system: due to the "risk-free" status they are used by investment banks and other institutional investors as collateral for short-term loans, as well as in the field of operations with derivative financial instruments.

Democrats and Republicans should agree to raise the debt ceiling before October 17 to avoid default on obligations of the U.S. Treasury. This day must be redeemed government bonds totaling 120 billion. Another 93 billion. the us authorities should return to investors on October 24. The investment Fund Fidelity Investments this week announced that "as a precaution" sold out of husbandy maturing in late October and early November from its portfolio. The company still hope that Congress will take action to increase the debt ceiling of the United States.

Worried about the impending deadline for raising the limit of hozaystvennih USA and Asia. The operator of the Hong Kong stock exchange Hong Kong Exchanges & Clearing on Thursday announced an increase of the discount at which it accepts short-term treasuries as collateral under transactions with futures. The discount will be increased from 1% to 3%. Japan's largest clearing house JSCC reported that preparing for "everything can happen", despite the fact that American husbandi rarely are used as collateral.

According to Director General of the Asian Association of the industry of securities and financial markets (Asifma) Mark Austen if the Treasury decides to declare default, it is important that it occurred before the opening of the Asian stock exchanges on October 17. "It may be chaos and people will start to get rid of bonds because they will not know whether those papers will even exist the next day. It is better if the Treasury will make a statement sooner than later," he said.

The Chinese Premier Li Keqiang said at a meeting with U.S. Secretary of state John Kerry that China was paying "great attention to the issue of the U.S. debt". To the risk of default in America are prepared even in the Philippines. "The government is aware of this possibility. We take all steps to protect our position and ensure that the consequences (of default) will be minimized", — said the representative of the President of the country Benigno Aquino. However, he did not specify what protective measures prepares an island Republic, fearing to "create more nervousness around the situation".

However, most investors do not believe in the reality of the threat of default. This is partly due to the fact that their nerves tempered fights over increasing the borrowing limit in 2011. "Fear of a default was then stronger. Now the situation is like the boy who shouts about wolves. The market really doesn't believe that the threat is real," explained CNN Money chief investment officer of the TCW Ted Rivel.

According to analysts Deutsche Bank, the debt limit will be increased closer to the 17th of October or immediately after this date, and the probability of default on bonds tends to zero. "If you play with fire, you get burned: policy in opposition to create a real, albeit small, risk that they will miscalculate and will allow a default on the national debt" — fears all of the Berenberg Bank economist Robert wood.

Gleb Kostarev, Andrei Kotov


RELATED MATERIALS: Economy and Finance
Возрастное ограничение