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Investors are getting nervous that the US might default on its debt.
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Demand for debt insurance has skyrocketed while demand for US Treasuries has dipped, the FT reported.
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The United States could stop meeting its obligations as early as July this year, the Congressional Budget Office has warned.
Investors seem increasingly eager for the showdown over raising the US debt ceiling as a deadline looms before the US defaults this summer.
Five-year credit default swaps on US government debt, one of the most widely traded forms of debt insurance, have reached their highest price since 2012, the Financial Times reported, reflecting a desire to investors to protect themselves against a possible debt default.
Meanwhile, demand for US Treasuries has eased, a sign that investors are moving away from government-issued debt as the deadlock over raising the debt ceiling continues. Prices for Treasury bills due in late summer, when a debt default could occur, have fallen below those of other riskier short-term debt instruments, the FT said.
Though experts say unlikely, a debt default would be potentially catastrophic for markets, with US Treasury Secretary Janet Yellen calling such an event “unthinkable.” Markets could easily be affected by liquidity problems as foreign bondholders, companies and governments sell their holdings, potentially triggering a financial crisis, she warned.
But time is running out for policymakers, who are holding out as they discuss possible spending cuts as a condition of raising the debt ceiling. Date X, when the US will default on its debt obligations, could fall between July and September 2023, according to a projection by the Congressional Budget Office.
Meanwhile, the US Treasury has stepped in with “extraordinary measures” to make sure the government can continue to meet its obligations, preventing an immediate crisis from hitting the economy.
House Republicans are reportedly beginning to create a debt ceiling package and could be close to reaching an agreement with Democrats, but the proposal includes steep spending cuts, Punchbowl News reported, including a ban on items on the Democrats’ agenda, like student loan forgiveness.
Read the original article on Business Insider