Baku. 8 August. REPORT.AZ/ The US Treasury bond market continues to noticeably react to uncertainty regarding the upcoming increase in the US public debt ceiling. While treasury bills with maturity in October continue to decline compared to securities of November and December, the market is very grimly assessing the situation associated with the approaching extreme date of raising the upper limit of US debt.
Report informs citing the Vesti.Ekonomika, the US Treasury expects that it will be able to finance the government only until the end of September. Because of serious political disagreements in the congress, investors admit the risk of US default on the backdrop of the inability of legislators to agree on any issues. Now 5-year old CDS on American bonds in comparison with a similar tool for securities of Germany are at the highest levels since the bankruptcy of Lehman Brothers in 2008.
Notably, on September 30, 2013, the US Federal Government partially ceased its work, as Republicans and Democrats could not agree on the budget parameters for the fiscal year, which began on October 1, 2013. Over 1 mln civil servants could not work for 16 days. Not only ministries and departments, but also museums and national parks stopped working. The Americans themselves faced with delays in obtaining various certificates and documents. The partial cessation of the government's activity reduced the quarterly growth of the US economy by 0.25 pp and costed 120,000 job losses in October.
But while debt and credit risks are desperately signaling concern, the VIX curve gives a completely opposite picture, referring to the relative fall in volatility. But the same curve indicates problems in early 2018.
Notably, US debt ceiling is set at around 19.808 trln dollars. Until the limit is not exceeded, the US Treasury is helped by the reserves accumulated on the accounts in the Federal Reserve, although since March their volume has more than halved, from $ 405 bln to $ 197 bln. Since 1960, the US exceeded the national debt ceiling 79 times. The ratio of public debt to GDP in 2016 reached 77% - the largest amount since the Second World War. This debt ratio is projected to reach a new record high of 107% by 2035 and 150% by the end of the projected 30-year period in 2047.