Financial Markets Seem Disinterested In Debt Discord Washington may be preoccupied with the debate over whether to raise the debt ceiling and the consequences of a default, but so far at least, the nation's financial markets appear to be taking the prospect in stride.
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Financial Markets Seem Disinterested In Debt Discord

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Financial Markets Seem Disinterested In Debt Discord

Financial Markets Seem Disinterested In Debt Discord

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As we heard earlier in the program, the debate over whether to raise the nation's debt ceiling has absorbed Washington lately. And President Obama will be holding a press conference on the issue later this morning. There are warnings that economic disaster could ensue if Congress fails to act. But as NPR's Jim Zarroli reports, the nation's financial markets seem to be taking the debate in stride.

JIM ZARROLI: It's not hard to find economists who think that it would be a big disaster for the U.S. economy if Congress doesn't raise the debt ceiling. All of a sudden the government wouldn't have enough money to pay its debts, so it would have to stop writing checks for things like Social Security or stop paying back the debt it owes or maybe both.

Beth Ann Bovino is an economist with Standard and Poor's.

Ms. BETH ANN BOVINO (Senior Economist, Standard and Poor's): I think the government is playing with fire.

ZARROLI: And yet if the economy is approaching Armageddon somebody forgot to tell the financial markets. Take Treasury bills. If investors were worried about a default they would flee U.S. government debt and look for other places to put their money.

John Canavan analyses the credit markets at Stone and McCarthy.

Mr. JOHN CANAVAN (Market Analyst, Stone and McCarthy): A lot of money that would typically flow into treasuries in times of uncertainty would be more likely to flow into perhaps bunds in particular. That is, German debt markets.

ZARROLI: And with less money flowing into treasuries, the government would have to pay higher interest rates to borrow what it needs. Mortgage rates would go up and businesses would have to pay more to borrow.

But nothing like that is happening yet. In fact, interest rates are still near historic lows. The yield on the 10-year Treasury bill hovered near 3 percent on Friday.

Why are investors being so blase? John Canavan says they're simply focused on other things right now.

Mr. CANAVAN: There has been some indication of a little bit of nervousness. But as far as the treasury market is concerned, there've been more pressing, near-term concerns.

ZARROLI: Canavan says investors are concentrating on the slowing U.S. economy and the European debt crisis. As a result, Beth Ann Bovino says investors are looking for safe havens to put their money. And for all their problems right now, the U.S. treasury markets still seem like the safest and most liquid in the world.

Ms. BOVINO: We're seeing weakness and certainly risk in the rest of the world, particularly in the Eurozone. So money is moving out of the rest of the world and into U.S. government debt.

ZARROLI: The fact that money keep flowing into U.S. government debt also suggests that many investors aren't yet taking the crisis seriously.

Jim Paulsen of Wells Capital Management is one of many people in the markets who think the current debt ceiling debate is little more than political theater. Members of Congress, he says, will almost certainly resolve the issue, because the consequences of not doing so would be too terrible.

Mr. JIM PAULSEN (Chief Investment Strategist, Wells Capital Management): The reality is not a one of them is going to allow an effective and meaningful default of the U.S. government.

ZARROLI: Paulsen says far more important to investors right now are things like unemployment and retail sales data.

Mr. PAULSEN: Those are what's going to drive these markets for the rest of the year, not this politically made up drama.

ZARROLI: And investors all over the world basically know this, he says. So with all of the other things going on in the economy they still see the U.S. treasury markets as safe. That could change as the deadline approaches, but for now investors have other things on their minds.

KELLY: This is NPR News.

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