Friday, October 23, 2015

US is running out of cash again to pay off debt - Rabobank

FXStreet (Guatemala) - Analysts at Rabobank noted the risks ahead in respect of the US Federal Government's debt ceiling.

Key Quotes:

"The United States government is approaching a critical deadline to prevent the US from defaulting on its debt."

"The Treasury Department reached the debt limit on March 15 already, and it has since been using extraordinary measures in order to avoid having to increase its borrowing any further. However, these extraordinary measures –which are effectively accounting tricks– can only offer temporary reprieve. Having used these measures for over half a year now, the limit of these measures is starting to appear on the horizon again. Indeed, last week, the Treasury Department sent a letter to Congress, warning that if they fail to agree on an increase of the debt limit, the US Treasury will probably run out of money as early as November 3."

"While the Republicans in the House of Representatives are still looking for a new Speaker, the extraordinary measures that the Treasury Department is using to avoid having to increase the debt limit are estimated to be exhausted by November 3. If the debt limit is not increased in time, the federal government is heading for a default.

As we have seen in similar episodes in recent years, yields on bonds maturing up to one month after the deadline are on the rise again. Previous episodes suggest that within this ‘implied default window’ of one month we are likely to see further yield increases.
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