As Default Looms, Investors Scurry to Unload US Bonds

Banks steer clear of short-term US debt
By Matt Cantor,  Newser User
Posted Oct 15, 2013 11:53 AM CDT
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)

(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. (Read more Congress stories.)

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