Bond Market’s Debt-Ceiling Alarm Bell Is Ringing Loud and Clear
In the $2 trillion Treasury-bill market, where the U.S. government turns for short-term funding, investors are showing they’re plenty nervous about the approaching deadline to raise the nation’s debt ceiling. With Treasury expected to exhaust its borrowing authority as early as the first half of March, a four-week bill sale on Tuesday will serve as the latest gauge of investor anxiety. There’s growing concern that the impasse over the debt limit will become entangled with efforts to keep the government open. Current federal funding expires Feb. 8, and the Republican-led Congress has been working on a stopgap measure to extend that into late March. Treasury has deployed extraordinary measures to stay under the debt cap since it was reinstated in early December, but investors are wary. The new securities mature March 8, around when the Congressional Budget Office expects Treasury to run out of room. Traders are asking for higher yields to own previously issued bills maturing March 8. What’s more, an auction last week of bills due March 1 drew the weakest demand since May. “People are kind of getting skeptical of March 8 bills,” said Joseph Abate, a strategist at Barclays Capital in New York. “You might argue that the March 1 bill isn’t necessarily vulnerable to payment delay because the Treasury probably has sufficient resources to meet outflows and thus might be able to last until” March 5.
S&P Says Disorderly Brexit Would Pressure U.K. Sovereign Rating
A disorderly Brexit may see further cuts to the U.K.’s credit rating, according to S&P Global Ratings. S&P, which downgraded the U.K. by two notches to AA after the referendum, said in a statement Monday that such a scenario may become more likely if the nation’s lawmakers misjudge the European Union’s negotiating position. The firm said the EU’s self-preservation is at stake, meaning it is “unlikely to take a ‘soft’ line in the negotiations” lest it spark a domino effect of more member states opting to leave. “The U.K. government at the time misread the electorate’s mood when it invited it to vote on EU membership,” said Moritz Kraemer, global chief rating officer at S&P. “It is hopefully not also misjudging central convictions held across the channel. Otherwise, a disorderly Brexit could become increasingly likely. Such a turn of events would bring renewed downward pressure to Britain’s sovereign rating.” S&P currently has the U.K.’s AA score under review with a negative outlook. It is scheduled to deliver an update on its rating in April.
Indonesia’s Economy Improves Slightly as Exports Pick Up
Indonesia’s economy grew slightly better than expected last quarter, supported by a pick-up in exports while consumer spending continued to disappoint. Stocks and the currency pared losses. Despite an aggressive run of monetary policy easing, consumer spending growth was little changed at about 5 percent last quarter. And while the economy’s expansion was the fastest since 2016, risks are rising, including higher interest rates in the U.S., which could worsen financial market volatility. “It’s not enough for Indonesia,” said David Sumual, chief economist at PT Bank Central Asia in Jakarta. “We need more than 5.2 percent, about 5.5 percent, to create the jobs that are needed. The government has some homework to do to figure out what must be done to get people spending.” Government spending rose 3.8 percent in the fourth quarter from a year earlier, investment increased 7.3 percent while exports strengthened 8.5 percent.