Bonds & Dollar Dump; Crypto Jumps As Debt-Ceiling Doubts Build

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Anxiety over the Debt Ceiling is starting to quietly grow in the back of investors’ minds as politicians “meddle with the primary force of nature”…

Bloomberg’s Ed Harrison notes that low Treasury bond yields may not be pricing in the increasing potential for a default by the U.S. government. After a Republican Senate caucus meeting Tuesday, Senate Minority Leader Mitch McConnell told reporters “let me be crystal clear about this: Republicans are united in opposition to raising the debt ceiling.”

If the U.S. does not raise the debt ceiling, it will eventually default on its obligations, including U.S. Treasury bonds. But bond yields have been falling despite the risk. At issue is the proposed $3.5 trillion infrastructure bill proposed by Congressional Democrats. McConnell went on to say that “[the Democrats] have the ability and the responsibility to ensure that the federal government not default”. The implication is that, unless the Democrats table the spending bill, Republicans will refuse to raise the debt ceiling. That’s likely to result in a game of chicken. Unless one side relents, a government shutdown is in the cards, and, potentially a U.S. debt default.

However, the short-term T-Bill market is very aware of the risk for now, with a major kink in the curve…

And the spread across the critical date in October when Yellen said “time’s up” is growing notably wider…

Source: Bloomberg

Could this be why the dollar is starting to sink?

Source: Bloomberg

And bond yields are starting to rise?

Source: Bloomberg

Of course, stocks couldn’t give a shit, it’s always time to buy!! (Everything lifted at around 12ET and never looked back)…

All the majors back into the green for the week…

But as US stocks bounce, European stocks hit seven-week lows on inflation and power concerns…

Source: Bloomberg

The S&P did what it does and bounced off the 50DMA once again…

Did MSFT share buybacks save the world again?

The 10Y Yields rose back to 1.30%…

Source: Bloomberg

Cryptos extended their gains, despite Dalio’s warnings and Gensler’s comments, as perhaps an alternate to the dollar amid the debt ceiling debacle is driving the marginal bid.

Bitcoin rallied back above $48k…

Source: Bloomberg

And Ethereum jumped back above $3500…

Source: Bloomberg

Gold dropped back below $1800…

Oil rallied hard today with WTI briefly testing above $73 after EIA inventory data showed big draws…

Finally, The Fed’s worst nightmare – Stagflation…

Source: Bloomberg

…is becoming a real fear.

Source: Bloomberg





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