As Default Looms, Investors Scurry to Unload US Bonds

Banks steer clear of short-term US debt

By Matt Cantor,  Newser Staff

Posted Oct 15, 2013 11:53 AM CDT

(Newser) – Worried over the possibility of default, investors and banks aren't taking chances: They're selling off billions of dollars of US debt, the Wall Street Journal reports. Banks have cut their government debt holdings by some 50% in the past two weeks, New York's Federal Reserve says. Additionally, some banks are opposing the use of short-term bonds in certain transactions so they won't end up saddled with the debt.

Banks are showing a preference for longer-term bonds; Citigroup is urging clients not to use Treasurys set to mature Oct. 24 or 31, and yields on one-month bonds are actually higher than those for six-month bonds, reversing the norm. Meanwhile, analysts say a short-term deal could still leave the US hurting: "In the near-term, any budget agreement would be viewed as a positive," says a BlackRock strategist. "But if the best Washington can do is a series of short-term extensions, there will be an economic price to be paid." Indeed, another credit-rating downgrade wouldn't be out of the question, the Journal notes.

Senate Majority Leader Harry Reid is surrounded by reporters after leaving the office of Senate Minority Leader Mitch McConnell on Capitol Hill on Monday, Oct. 14, 2013.
Senate Majority Leader Harry Reid is surrounded by reporters after leaving the office of Senate Minority Leader Mitch McConnell on Capitol Hill on Monday, Oct. 14, 2013.   (AP Photo/ Evan Vucci)
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