Debt ceiling worries bubble up in US stock options market

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Worries over a debt ceiling showdown are creeping into U.S. options markets, as investors grow increasingly concerned that lawmakers will be unable to hammer out a deal in coming weeks. | Reuters

“It’s something that is definitely getting increasing attention,” said Alex Kosoglyadov, managing director of equity derivatives at Nomura.

Meanwhile, the volatility term structure – a curve showing the change in expectation for future stock market gyrations – shows the July futures for the Cboe Volatility Index , often called “Wall Street’s fear gauge”, trading 1.2 points higher than June, the largest gap of any two months between June and December.

U.S. Treasury Secretary Janet Yellen on Tuesday warned that failure by Congress to raise the government’s debt ceiling – and the resulting default – would trigger an “economic catastrophe” that would send interest rates higher for years to come.Legislative standoffs over debt limits this last decade have largely been resolved before they could ripple out into markets. That has not always been the case: A protracted standoff in 2011 prompted Standard & Poor’s to downgrade the U.S.

 

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