Sept. 30 marks the end of the federal government’s fiscal year, and the deadline for Congress to pass a funding measure. The debt ceiling, which is the...
Even as Washington managed to avoid an imminent government shutdown Thursday, here’s why the status of the nation’s debt ceiling may ignite more worry in financial markets.
It’s important to note that no one knows precisely when the U.S. Treasury will run out of money to pay its bills, including bondholders, let alone what would happen next. U.S. sovereign debt generally has been considered the safest and most liquid to own in the world, and all kinds of financial market products and processes have been pegged to the orderly functioning of the nearly $21 trillion Treasury market.
While most analysts expected a mid-October “X date,” when Treasury will run out of money to pay bills, Yellen on Tuesday told Congressional leaders that it would be Oct. 18. “At that point, we expect Treasury would be left with very limited resources that would be depleted quickly,” she wrote in an update.Read: U.S. seen running out of cash between Oct. 15 and Nov. 4, as debt-limit drama continues
Plumbing problems SIFMA, the Securities Industry and Financial Markets Association, is the industry association that deals with the mechanics of how securities like sovereign bonds trade and settle. The group has worked with financial infrastructure providers including Fedwire and FICC to try to devise some sort of playbook. For now, there are two possible scenarios:
In a second scenario, which SIFMA said would be very remote, Treasury cannot, or does not, give any advance warning of a failure to make a payment, and it just happens. That would be far more chaotic, “a real problem scenario,” as SIFMA says.
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