Bonds Now Expecting Worse Debt Ceiling Confrontation Than August 2011, Stocks - Not So Much

Amid the bluster of yet another press conference, equity markets chopped around jerking up and down 5 points at a time for the S&P 500. But one market, the Treasury Market, went only one way. While it is all too easy to watch the tickers and listen to the glib bloviation of any and all talking head exclaiming that there is no-way, zero-chance, totally unlikely, impossible that the US government would technically default - the Treasury-Bill market is less confident (10/17s +8.5bps to 22.5bps, 10/31s +7.5bps to 23.5bps). In fact, the T-Bill yield has now spiked massively more than during the 2011 Debt-Ceiling debate (and stocks - for now - have not).

 

T-Bill yields are blowing out today

 

and are now dramatically worse than during the 2011 debt ceiling debacle...

 

and please don't make the mistake of thinking that a 25bps 1-month yield is small and that the odds are therefore tiny... that is incorrect. The Treasury note will be repaid at some point (since the US will need to pay if it delays payment or risk the entire Treasuru complex collapse); this is merely a reflection of a discounting of 'When' that payment is made and a market that is growing more skittish at the "safety" of holding short-term money in bills. Bear in mind that current 1-month yields are the same as 18-month yields were 2 weeks ago before the debt-ceiling debacle began.

 

And do not forget what happened last time.

 

 

Charts: Bloomberg