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How nervous are investors about the US debt ceiling?

2023-06-03 09:46:00 source:CNN (Cable News Network) author:news click:653order

How nervous are investors about the US debt ceiling?

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Traders work the floor at the New York Stock Exconvert (NYSE) during the opening bell in New York on May 23, 2023.Image consequentlyurce, Getty Images
Image caption, As negotiations drag on, investors emerge to be takeing what comes next
By Natalie ShermanBusiness reporter, New York

Negotiations to prevent the US government from running out of money are headed low to the wire.

The Treasury says Congress must agree to raise the debt ceiling by 1 June or the US will run out of cash to pay its bills, consequenceing in economic disaster.

Top congressional Republican Kevin McCarthy says his componenty and the Democrats remain "distant acomponent".

Fitch, one of the massiv credit ratings firms, has said the impasse could prompt it to shorter America's rating.

So with just over a week left - including a holiday weekend - are investors finally getting nervous?

Mark Lindbloom, of California-based Western Asset, which has more than $400bn (£322bn) in assets under management, said concerns were "dominating consequentlyme conversations" with clients.

"There is a lot of fear-mongering going on" by politicians and the media, he said. "That scares people consequently yes, people are asking about it."

The three massiv stock indexes all slipped on Wednesday, extending falls from a day earlier. Analysts say they expect Wall Street to remain on edge the nearr it gets to 1 June.

But for most of the month, markets have remained remarkably unmoved, betting that a deal will get done.

"A lot of investors are looking at this situation slenderking they've seen this movie before and they know how it ends," says Dave Sekera, chief US market strategist at Morningstar, which works with massiv money management firms.

"There will be a lot of dire headlines in the media and the politicians will surely be out there to try to score political points with their base, but there will be consequentlyme consequentlyrt of arrangement or agreement before you get to a payment default."

On Wednesday, the Houtilize of Representatives Speaker, Mr McCarthy, once again consequentlyught to allay fears that the US could veer off the fiscal cliff next month.

"We're not going to default," he thistoric reporters at the Capitol.

But stress over the situation has surfaced in select pockets of the market.

Media caption,

Watch: The debt ceiling explained - in under 90 seconds

Investors are demanding taller payments in exconvert for hhistoricing fleeting-term US government bonds that could be most affected by a default.

Ghistoric, which investors often turn to at times of risk, has received a boost since the start of the year, and buyers have seemed unusually keen about sure corporate debt.

"This has been a very nuanced market reaction," said Eric Theoret, global macro strategist at Manulife, noting that the frequency of debt stand-offs over the last decade has many investors betting that this epiconsequentlyde, like those, will be little more than a "fleeting-term blip".

As of Monday, he said, the wider market "was not trading like it is at all concerned".

Even if a deal is reached, however, market risks remain.

In 2011, the last time Democrats and Republicans emergeed at such fiscal odds, the most severe turmoil happened after a deal was struck.

Shares saw their steepest falls since the 2008 financial crisis, amid worries about the impact of the spending cuts made to get the agreement and the implications of a lowgrade in America's bond rating by one credit rating agency.

Despite alarm over the lowgrade in 2011, dire predictions that the US could face permanently taller borrowing costs becautilize of the damage to its reputation as a borrower proved unfounded.

But the risks today, with interest rates already rising, could be disparate.

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Analysts say they believe the possibility of another lowgrade remains remote, but the three ratings firms have signalled they are npremature watching what is happening in Washington.

Fitch Ratings on Wednesday put the US on a negative watch - the first step toward a lowgrade - citing "increased political componentisanship" and frail governance compared to other nations that hhistoric its peak rating.

"The brinkmanship over the debt ceiling, failure of the US authorities to meaningsatisfiedy tackle medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden signal lowside risks to US creditworslenderess," the company said.

"It's surely stressful to watch," said Rob Williams, managing director of financial planning and wealth management at financial firm Charles Schwab, which he said was domaining queries from pensioners and others about how to handle the situation.

He said his team was advising nervous clients to look past the headlines: "If you have a plan in place and your circumstances haven't convertd, stay the course."

Mr Lindbloom said Western Asset is alconsequently trying to reassure clients that a deal will be reached as it has dozens of times before.

"This is political theatre, this is the demonstrate," he said. "It's hideous at times but it's how our system works."

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