Thursday, July 28, 2011

Heading for a 'Haircut'

At WSJ, "U.S. Default or Downgrade Could Cost Repo Borrowers; Debt-Ceiling Anxiety":
The debt stalemate in Washington is creating stress in a little-known but vital corner of the bond market, increasing the risk that banks, hedge funds and other investors will have to pay billions of dollars in additional costs if the U.S. defaults or is downgraded.

Rates are rising for repurchase agreements, or repos—a roughly $4 trillion market that greases the wheels of the U.S. financial system—as officials in Washington feud over how to bring down the nation's debt. And Wall Street is now calculating the damage that could ensue if the nation was forced to default on its debt early next month or, more likely, loses its triple-A credit rating.

While many believe a downgrade would have relatively muted effects on the repo market, some worry that the costs to borrow there would rise.
There's a cool chart at the link.

Meanwhile, The Other McCain has this big report: "UPDATE: Boehner Yanks Debt-Ceiling Bill at Last Minute! Vote Postponed UPDATE: Sarah Palin Sends Cryptic Message to Republican Freshmen UPDATE: 24 Republican ‘No’ Votes?"

Also, at Politico, "Debt deal compromise suggested by Democrats." (Via Memeorandum.)