Amidst the news that Fitch Ratings took a step toward cutting the U.S. government’s AAA debt rating Tuesday, investors holding $120 billion of Treasury bills coming due tomorrow are worried that they won’t get paid. It is even more worrisome for investors as no way out seems possible as the Thursday deadline to raise the nation’s debt ceiling or risk default is nearing.
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Fitch in its statement said that the government would have only limited capacity to make payments. Particularly, when the Treasury Department’s emergency measures run out Thursday it will face problems on the $16.7 trillion national debt. In news the yield on the four-month Treasury bill that matures Oct. 24 spiked to nearly 0.5% amidst the fear that they might be affected by default.
According to reports 0.5% is not a concern; however, its average yield has been 0.056% which may be a concern. Investors believe that a major reason behind the driving up of the yield is that holders including money funds are worried about the impending government defaults. Nobody wants to own duds.
As they want to sell the treasuries, they have to opt for offering higher yields. Reports say that assets at government-only money funds fell $12.7 billion the week of Oct. 10 as the date for debt default is nearing. Treasury Secretary Jacob J. Lew said the U.S. will exhaust its borrowing capacity – this statement caused a surge of 12 basis points, or 0.12 percentage point, to 0.32 percent this week.
Even the securities which were issued a year earlier are now not faring well. They were being traded at a rate of negative 0.01 percent as recently as Sept. 26 amidst the fear that the U.S. government may default on its debt. Now investors and traders believe that as Fitch Ratings placed the U.S.’s AAA credit rating on a negative watch yesterday, the situation is going to worsen.
AAA rating on U.S. debt Will Be Revised by the end of the first quarter Says Fitch
Fitch in its statement said that the prolonged negotiations over raising the debt ceiling is worsening the situation and risks undermining confidence in the role of the U.S. dollar as the preeminent global reserve currency. It said that its announcement reflects the urgency with which Congress should act to remove the threat of default hanging over the economy.
To contact the reporter of this story: Jonathan Millet at firstname.lastname@example.org