Debt Ceiling Talk Update: Yields Surge As No Deal Is In Sight19 July, 2011, 1:18. Posted by Zarathustra
Tags: Debt Ceiling, Debt Crisis, Economy, United States
Amid the European debt crisis and the phoney bank stress tests, European stock market fell sharply. UK banks are, curiously, quite hard hit with the fear of contagion to the UK, and the scandal of the News Corporation getting out of control, undermining the position of the Prime Minister David Cameron, as he once hired Andy Coulson, the then editor of the News of the World which is at the centre of the scandal. Barclays was off 7.01%, and Lloyds was off 4.87%. In Continental Europe, Deutsche Bank was off 3.51%, Commerzbank was off 4.64%, and UniCredit was off 6.36%, just to name a few.
In the US, of course, banks shares are also being hit, led by Bank of America, which is now off 3.6%. Normally with market selling off risky assets, money going into safe assets. Gold, of course, is now making new highs. US Treasury securities used to be the favourite safe assets, but it is no more. As far as eyes can see, the 30-year yield is jumping to almost 4.3%, and 10-year yield is jumping to 2.919%, not usual moves amid uncertain market.
Of course, the Treasuries are the source of uncertainty as well, as no one really have any idea whether there is any progress. Tim Geithner, the Treasury Secretary, went on the CNBC and told everyone to say what you like, but there has been progress in the debt ceiling talks. He also reassured everyone that raising the debt limit is the only choice, and there is no plan B, which is hardly reassuring. Meanwhile, House Republicans want to vote on the so-called “cut, cap, and balanced” bill on Thursday. The bill will call for a balanced-budget amendment in the constitution, as well as spending cuts and spending caps. This is not really the deal here, as it will most probably not passed the Democrats-led Senate, even if it passes the House. Not only that, President Obama threatened just now that should he see this bill on his table, he would veto it.
So where is the real deal here? No one has any idea.
As Treasury yields rise, one would wonder what these politicians are thinking. Perhaps, unfortunately, they really need to see the market falling off the cliff to understand the problem, just like when the Republicans voted down TARP in 2008.