• Wall Street Execs Preparing for US Debt Default: Citigroup CEO Jane Fraser has warned that the ongoing debate is “more worrying” than arguments over previous debt ceiling deadlines.
• Treasury Secretary Janet Yellen Projecting Possible Collapse in Mortgage and Stock Markets: Yellen has warned that the US will experience an “economic calamity” if Congress fails to raise the debt ceiling by June 1st.
• Bond Investors Stress Importance of Liquidity: The Securities Industry and Financial Markets Association (SIFMA) is reportedly gaming out multiple routes the government might take in case it runs out of cash.
US Debt Default Looming
Wall Street executives are reportedly preparing for a possible US debt default, with Citigroup chief executive Jane Fraser warning that the ongoing partisan debate is more worrisome than arguments over previous debt ceiling deadlines, according to Reuters. U.S. Treasury Secretary Janet Yellen has further projected that the US could face economic calamity if Congress fails to raise the debt ceiling by June 1st.
Bond Investors Stress Importance of Liquidity
In order to remain durable amid potential market volatility, big bond investors are stressing the importance of liquidity, reports Reuters. The Securities Industry and Financial Markets Association (SIFMA), a trade group for broker-dealers, investment banks and asset managers, is reportedly gaming out multiple routes the government might choose to go down should it run out of cash when its deadline passes on June 1st.
Potential Collapse in Mortgage and Stock Markets
Yellen projects that should Congress fail to raise the debt ceiling by June 1st, potential market disruptions could include a collapse in mortgage and stock markets as well as other economic issues due to a lack of liquidity from government spending cuts or taxation increases. Rob Toomey, SIFMA’s managing director and associate general counsel for capital markets notes this situation would be unprecedented so his organization is trying to develop plans with members so they can navigate through any disruption caused by a failure to pass legislation before June 1st.
Negotiations Between House Republicans & Biden Administration
Negotiations between House Republicans and President Joe Biden’s administration have been ongoing though no clear resolution has been reached yet as of Tuesday afternoon (May 24th). It remains unclear how close both sides are to reaching an agreement before June 1st or what will happen should they fail to do so before then.
Conclusion
While negotiations continue between Democrats and Republicans ahead of the looming US debt deadline on June 1st, Wall Street execs are preparing for worst case scenarios which could include a collapse in mortgage and stock markets due to lack of liquidity caused by government spending cuts or taxation increases should Congress fail reach an agreement in time.
