Equities dropped in the U.S., Asia and Europe on Tuesday as a combination of recession, banking, and debt-ceiling risks facing the world’s largest economy came together and dented the appetite for risk-taking. The decidedly risk-off sentiment began in Asian markets outside of Japan after California’s First Republic Bank reported a disappointing 41% first-quarter drop in deposits in an announcement released late Monday, reigniting worries about the U.S. banking system.
Within the S&P 500 index, energy, materials, industrials, and information technology companies were getting pummeled harder than the financial sector through afternoon trading. In addition, he said, weak tax receipts in April are bringing forward the possibility that the U.S. might reach the so-called X-date in June, after which Treasury may not be able to pay all the U.S. government’s bills. That would be earlier than expected — which could lead to an “extreme” outcome because “you could have a government shutdown or financial turmoil if the government selectively defaults on its debt, which is unprecedented.
In the Treasury market on Tuesday, investors added the 1-month T-bill TMUBMUSD01M to the bucket of very short-dated maturities they are avoiding because of the potential fallout from a debt-ceiling fight. They sold off 1-month bills aggressively, sending the corresponding yield soaring to around 3.68% in the afternoon.
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