10 Oct 2013
Flash: staring at the debt ceiling, risk of a 2013 downgrade? – Rabobank
FXstreet.com (London) - Research teams look at the market implications around a possibility of Republicans and Democrats failing to reach an agreement in time.
Key Quotes:
“We look back at the debt ceiling events of 2011 to get an idea what kind of market reaction we can expect before and after the debt ceiling deadline of October 17.Interestingly, they suggest only modest safe have flows before the deadline, as the perceived risk of a default remains low”.
“The large declines in the 10y US treasury yield in 2011 occurred after the deal to raise the debt ceiling was made, first because of the perceived risk of a downgrade, then because S&P actually pulled the trigger".
“However, the budget deficit has fallen substantially this year and the fiscal projections have also improved. This makes a downgrade in 2013 less likely, so the market impact of this year’s debt ceiling deadline should be less violent, unless Republicans and Democrats fail to reach an agreement in time".
Key Quotes:
“We look back at the debt ceiling events of 2011 to get an idea what kind of market reaction we can expect before and after the debt ceiling deadline of October 17.Interestingly, they suggest only modest safe have flows before the deadline, as the perceived risk of a default remains low”.
“The large declines in the 10y US treasury yield in 2011 occurred after the deal to raise the debt ceiling was made, first because of the perceived risk of a downgrade, then because S&P actually pulled the trigger".
“However, the budget deficit has fallen substantially this year and the fiscal projections have also improved. This makes a downgrade in 2013 less likely, so the market impact of this year’s debt ceiling deadline should be less violent, unless Republicans and Democrats fail to reach an agreement in time".