Default Fears Push Yields On Short-Term T-Bills To Over 7% — JPMorgan Says 1-in-4 Chance US Will Hit Date X

The continuing political stand-off in debt ceiling negotiations has begun taking its toll on short-term treasuries with yields on soon-to-mature papers reportedly topping 7%. The impasse has also hurt appetite for short-term treasuries as the possibility of a default is something that investors have begun to weigh-in.

Rates on treasuries set to mature on June 1 and June 6 at one point on Wednesday topped 7%, which is close to 4 percentage points above the yields on instruments maturing May 30, reported Bloomberg. The iShares 1-3 Year Treasury Bond ETF SHY closed 0.12% lower while the Vanguard Short-Term Treasury Index Fund ETF VGSH lost over 0.15% on Wednesday, according to Benzinga Pro.

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At the same time, the cost of insuring U.S. sovereign debt against default with derivatives has also risen, the report added. It is now higher than the bonds of many emerging markets that have credit ratings well below that of the U.S..

JPMorgan Chase & Co. believes there's a roughly one-in-four chance that the country will hit the so-called X-date — the point at which the government runs out of options to fund itself — without a deal to raise the ceiling, and the odds are getting worse, the report said.

Ratings: Meanwhile, Fitch ratings, on Wednesday, placed the ‘AAA’ Long-Term Foreign-Currency Issuer Default Rating of the United States on Rating Watch Negative.

The ratings agency said its action reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching X date. Even Wall Street, too, has begun showing signs of souring investor sentiment. The SPDR S&P 500 ETF Trust SPY closed 0.72% lower on Wednesday while the Invesco QQQ Trust Series 1 QQQ shed 0.51%.

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