WASHINGTON (MNI) ? The following is a roundup of key developments
and events Wednesday on the ongoing stand-off over the U.S. debt
ceiling:
* The White House Wednesday said it ?firmly? believes compromise
in the talks over raising the debt ceiling is ?essential? and
?possible.? ?There is a place to find compromise,? Press Secretary Jay
Carney told reporters, stressing the need for both sides to come
together as the August 2 deadline draws closer. Without an increase in
the limit, the government will be ?running on fumes? to pay its bills,
he said.
* Senate Majority Leader Harry Reid said Wednesday that all
Democratic senators are poised to vote against House Speaker John
Boehner?s debt limit plan if it ever reaches the Senate. In a briefing,
Reid almost taunted Boehner, saying he could defeat Boehner?s bill in
the Senate today even before Boehner pushes his plan through the House.
Reid touted the spending cut package that he proposed Tuesday,saying he
will ?tweak? it so that it achieves the $2.7 trillion inspending savings
that he sought.
* Senate Budget Committee Chairman Kent Conrad Wednesday said
despite the appearance of total gridlock on Capitol Hill regarding debt
ceiling legislation ?there are a lot of talks underway? to resolve the
impasse. Conrad said the scenario that he believes is most likely is an
agreement on about a $2 trillion spending cut package along the lines of
what has been proposed by Senate Majority Leader Harry Reid and the
creation of a ?process? to get an additional $2 trillion in savings. The
Senate Budget Committee chairman said Reid?s plan represents ?the guts
of what can ultimately get across the finish line? now.
* U.S. regulators told lawmakers Wednesday that while a
downgrade of the U.S. sovereign rating could happen, its impact is
difficult to assess. The OCC?s Wilson was the only one to take a chance
at answering. ?It is something that we have considered,? Wilson said.
?The best guess is that there would be an adjustment of the margin
required, so you wouldn?t be able to borrow as much through the repo
market.? Still, he continued, ?We think that that?s manageable in the
short term because even, for example, going from a AAA to a AA, you
still have a very high quality security and it?s still considered one of
the safest instruments in the world.?
* Analysts at Deutche Bank said the clock is ticking for a
budget deal and this precludes a back-to-the-drawing-board approach.
?Any eventual agreement is likely to be a retooled version of one of the
major plans presently on the table ? namely the Boehner and Reid
proposals. We continue to believe a last minute compromise will avert a
government shutdown,? they said.
* There was a lull in new dollar-denominated, investment-grade
corporate bond supply Wednesday, but market sources generally showed
positive sentiment about high-grade debt performance in spite of
continuing uncertainties over a possible U.S. sovereign rating
downgrade. General market sentiment about high grade corporate bonds has
been positive in spite of the ongoing paralysis in debt talks primarily
because of the health of U.S. corporations? balance sheets.
* In a statement Wednesday, the National Association of
Manufacturers called for quick action on the debt ceiling and warned of
the negative effects of default. ?We have detailed the negative impact
that default would have on businesses, employees, competitiveness and
our nations ability to grow ? manufacturers are justifiably concerned
about the results of inaction,? NAM President and CEO Jay Timmons said.
?Doing nothing also will result in a decrease in foreign investments in
the United States and a general hit on the economy.?
* Senate Majority Leader Harry Reid and Senate Minority Leader
Mitch McConnell Wednesday resumed their sharp exchanges on the U.S.?s
debt ceiling impasse. Speaking on the Senate floor, Reid continued to
scorch the plan put forward by House Speaker John Boehner while
McConnell insisted the Speaker?s plan is the best alternative under
discussion. Speaking next, McConnell offered his ?very strong support?
for Boehner?s plan, saying it is the most credible alternative.
* In a letter sent by the U.S. Congressional Budget Office to
Senate Majority Leader Harry Reid Wednesday with estimates of his
deficit reduction proposal, the CBO said if appropriations in the next
10 years are equal to the caps on discretionary spending and the maximum
amount of funding is provided for the program integrity initiatives, CBO
estimates that the legislation would reduce budget deficits by about
$2.2 trillion between 2012 and 2021 relative to CBO?s March 2011
baseline adjusted for subsequent appropriation action.
* In a report Wednesday, Fitch Ratings noted that in the event
of a U.S. sovereign downgrade by a major rating agency, U.S. Treasuries
and broader financial markets could experience near-term volatility.
However, Fitch expects that, over the near to medium term, in the event
of a moderate downgrade, U.S. government securities would likely retain
their standing as the benchmark security of the global fixed income
market.
* Swaps spreads stayed close to home for the most part early
Wednesday, steady to wider while the front end narrowed to the tightest
levels since mid-June. Ahead midday, the 2-year spread was 1.75 bps
tighter at 21.5, the 5-year spread 0.5 bps wider at 27.25. Out the
curve, the 10-year spread widened 0.25 bps to 9.75, while the 30-year
spread inched 0.5 bps wider at -33.75, according to Tullet Prebon. Many
see the potential for sharp tightening, possibly inverting of spreads if
the U.S. federal government were to default on it?s debt obligations.
?Editor: Brai Odion-Esene; besene@marketnews.com
** Market News International Washington Bureau: 202-371-2121 **
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