Investors demanding higher premium for US debt at risk of default

(Bloomberg) — Investors are demanding a higher premium for US debt most at risk of default after yet another round of talks on the borrowing limit ended without a deal.

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Yields on four-week Treasury bills jumped 7 basis points on Tuesday, bringing their rise since the beginning of May to more than 60 basis points. The two-year Treasury yield climbed 4 basis points, while the 10-year yield was flat. US equity futures were little changed after a lackluster day on Wall Street. Stocks in Europe slipped, with Swiss asset manager Julius Baer Group Ltd. tumbling after disappointing results.

President Joe Biden and House Speaker Kevin McCarthy called their discussions on Monday productive, but an agreement that would avert a catastrophic US default remains elusive. That left traders on tenterhooks with the clock ticking to June 1, when Treasury Secretary Janet Yellen said her department may run out of cash. Any deal would have to be approved by Congress before then.

“I think a default is very unlikely as I don’t think either Democrats and Republicans want it, but we could get close to it and the deadline,” Fabiana Fedeli, chief investment officer for equities and multi-asset at M&G Plc, said on Bloomberg TV. “The closer we get to the deadline the more nervous clients will get and to me you could have a move towards safer havens, perhaps the long end of yield curve.”

An index of Asia-Pacific stocks declined for the first time on four days. Tokyo’s Topix index erased a gain and was set to snap its seven-day winning streak as semiconductor-related stocks turned lower on news that Japan’s tighter export controls will take effect July 23.

Concern is growing as well in the region about China’s tepid post-pandemic recovery, which is having a negative impact on key commodity prices such as iron ore and copper. Both have both tumbled in recent trading days. Crude oil was little changed, and gold slipped.

Meanwhile, the outlook for the Federal Reserve’s rate path is also on the minds of investors. St. Louis Fed President James Bullard said he’s thinking of two more rate hikes this year, while Minneapolis Fed President Neel Kashkari said if the US central bank pauses next month it should signal tightening isn’t over.

Key events this week:

  • US new home sales, Tuesday

  • Dallas Fed President Lorie Logan speaks, Tuesday

  • Fed issues minutes of May 2-3 policy meeting, Wednesday

  • Bank of England Governor Andrew Bailey speaks, Wednesday

  • US initial jobless claims, GDP, Thursday

  • Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday

  • Tokyo CPI, Friday

  • US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:


  • The Stoxx Europe 600 fell 0.2% as of 8:23 a.m. London time

  • S&P 500 futures were little changed

  • Nasdaq 100 futures were little changed

  • Futures on the Dow Jones Industrial Average were little changed

  • The MSCI Asia Pacific Index fell 0.5%

  • The MSCI Emerging Markets Index fell 0.3%


  • The Bloomberg Dollar Spot Index was little changed

  • The euro fell 0.2% to $1.0796

  • The Japanese yen was little changed at 138.48 per dollar

  • The offshore yuan fell 0.2% to 7.0643 per dollar

  • The British pound fell 0.2% to $1.2409


  • Bitcoin rose 1.6% to $27,316.51

  • Ether rose 2% to $1,855.29


  • The yield on 10-year Treasuries was little changed at 3.72%

  • Germany’s 10-year yield advanced one basis point to 2.47%

  • Britain’s 10-year yield advanced two basis points to 4.09%


  • Brent crude was little changed

  • Spot gold fell 0.7% to $1,957.65 an ounce

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Jason Scott, Ishika Mookerjee and Allegra Catelli.

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