“US Debt Ceiling Crisis: Treasury Secretary Janet Yellen warns of potential default”

By Le Figaro with AFP

Published on 05/16/2023 at 12:16

The United States is already feeling the concrete effects of the political crisis of the debt ceiling, according to Treasury Secretary Janet Yellen, who cites in particular the increase in the cost of borrowing for the American government. “Investors have become more reluctant to hold sovereign debt maturing in June“, underlines the Minister of Finance in a speech which she must deliver on Tuesday before the Association of local American bankers (ICBA) and of which the Treasury has published extracts in advance. The interest rate on one-month US Treasury bills thus rose to 5.74% on Monday, the highest for at least twenty years, against 3.29% in mid-April. It is significantly higher than the key rate of the US central bank, located in a range between 5.00% and 5.25%, a rarity.

This surge in the rate reflects the fall in the price of these Treasury bonds, which moves in the opposite direction of the rate, and which has therefore fallen significantly. This conjuncture forces the US government to borrow more expensively than under ordinary conditions. On Thursday, the US Treasury had to offer investors a yield of 5.50% for four-week Treasury bills, which will mature on June 13.

Default of payment envisaged from June 1

However, according to US government projections, a payment default is envisaged as of June 1, for lack of raising the debt ceiling, repeated Janet Yellen on Monday. This limit can only be increased by a majority vote in Congress. But as it stands, the Republicans in the House of Representatives refuse to raise the ceiling without compensation and a strict framework for public spending. The American President Joe Biden is due to meet with parliamentary opposition leaders, including Republican Speaker of the House of Representatives Kevin McCarthy, on Tuesday to try to find a compromise.

In addition to increasing the cost of borrowing for the United States, “too many companies have to spend time preparing for the event of defaultof the country on its debt, explains the Secretary of the Treasury in this speech. “And too many households have to worry about whether they will get by without the money promised to them by the government.“, she adds.