Worried Markets Want to Believe a Debt-Ceiling Deal Can Be Done

There are still some optimists in the market confident that a solution will be found in time to the US debt-ceiling crisis even as the Washington stalemate persists and many investors shun the most at-risk Treasury bill issues.

The window for averting a potential default is narrowing by the day, and although talks between President Joe Biden and House Speaker Kevin McCarthy on Tuesday yielded little, they are scheduled to meet again on Friday. Treasury Secretary Janet Yellen has flagged the risk that the US could run out of borrowing headroom as soon as early June and many investors have said that the risks are greater even than in 2011, when a narrow miss on the debt ceiling led Standard & Poor’s to strip the US of its top credit rating.

But there are many in financial markets predicting or hoping that some kind of deal will get done — in part because that’s what’s always happened, even when things have gone down to the wire.

On the Verge of Breaching the Debt Ceiling | The Treasury is close to running out of borrowing headroom

Money manager Janus Henderson this week pegged the probability of an outright default on Treasuries at less than 1%. Prominent investor Bill Gross, who used to run the world’s biggest bond fund at Pacific Investment Management Co., has labeled the whole situation “ridiculous” and advised people to buy short-end T-bills on the expectation that a fix will probably be found. And it appears that there are some in the market willing to scoop up bills in the debt-ceiling danger area to get the extra yield they offer despite the ticking clock.