Stock-market investors have seen this movie before and are betting that the latest installment of debt-ceiling drama won’t produce an unwelcome plot twist.
Brinkmanship around the federal debt limit has roiled parts of the U.S. Treasury market and sent the cost of insuring U.S. government debt against default to record highs, but so far there’s little sign stock-market investors are losing sleep over a standoff that, if left unresolved, could see the federal government default by early next month.
See: Biden describes debt-ceiling meeting as ‘productive,’ but McCarthy says he ‘didn’t see any new movement’ And the cost of insuring U.S. government debt against nonpayment using instruments known as credit-default swaps, or CDS, continued to rise. The cost of insuring U.S. debt against default for 1-year hit a record Tuesday, according to S&P Global Market Intelligence, surpassing costs for insuring Mexican and Brazilian debt.It’s the 1-month T-bill TMUBMUSD01M that investors should be monitoring, said Nicholas Colas, co-founder of DataTrek Research, in a Tuesday note.
Meanwhile, investors may recall 2011 and 2013 debt-limit showdowns, which were accompanied by stock-market volatility, but investors need to also keep in mind the macroeconomic backdrop that accompanied those episodes.