Feverpitched
Within the unlikely occasion of a U.S. technical debt default, each the longer-end 10-year Treasury yield (US10Y) and the extra rate-sensitive 2-year yield (US2Y) are anticipated to fall by round 20 foundation factors every, in line with respondents to a survey by JPMorgan printed on Friday.
The U.S. debt ceiling has taken on added significance as talks between Republicans and Democrats have remained inconclusive. Whereas an eleventh hour decision has at all times been reached, markets are extra on edge this time.
All eyes can be on Tuesday’s scheduled assembly between U.S. President Joe Biden and Home Speaker Kevin McCarthy. The deadlock stems from Republicans tying any improve within the debt restrict to new agreements on spending cuts.
Treasury Secretary Janet Yellen has warned that if the debt restrict will not be raised, the federal government may run out of extraordinary measures to pay its payments as early as June 1.
As per JPMorgan’s survey, 61% of respondents count on 2-year yields (US2Y) to fall by a median of 18 foundation factors, whereas 67% of respondents count on 10-year yields (US10Y) to fall by a median of twenty-two bp.
“Implicitly, this would go away the 2s/10s curve modestly flatter,” JPMorgan stated on Friday. The survey was performed from Might 9 to 11 and obtained responses from 123 institutional traders.
The survey outcomes discovered no outright consensus on how front-end swap spreads would carry out. 55% of respondents stated they count on some widening, by a median of two bp.
Turning to the anticipated efficiency of the U.S. greenback within the occasion of an unlikely technical default, there was a robust consensus among the many survey respondents that the buck would depreciate relative to protected haven currencies.
“78% of respondents see the USD weakening by a median of two.6% versus the JPY and the CHF,” JPMorgan stated. As of 1930 ET, USD/JPY (USD:JPY) +0.2%, USD/CHF (USD:CHF) -0.3%.
Respondents additionally consider the greenback will underperform relative to the euro, with 72% of respondents anticipating the USD to weaken relative to the EUR by a median of 1.7%. As of 1930 ET, EUR/USD (EUR:USD) +0.2%.
