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US Equities Plunge at the Close, One Month T-Bill Yields Soar

Posted by Joseph Trevisani on Oct 8, 2013 3:50:00 PM

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U.S. stocks fell as political intransigence over the debt ceiling threatened to undermine market confidence that a compromise will be found to avert a government funding crisis sometime after October 17th.

President Obama, in a new conference repeated that the GOP doesn't "Get to demand hostages for doing its job.” He called the Republican conditions on government funding and the debt limit "extortion." For his part, House Speaker Republican John Boehner said that the House, where all spending bills must originate, will not pass a government spending bill or a debt limit increase without  negotiating specific conditions with the White House.

The Dow dropped 159.71 points, 1.07% to 14,776.50, its lowest close since August 27th. The S&P 500 fell 1.23% or 20.67 points to 1,655.45 and the Nasdaq sank 2.0%, 75.54 points to 3,694.83.

Rates on one-month Treasury bills, the term most directly affected by the potential funding gap, rose to 0.33% today, the highest  since October 2008, at the height of the financial crisis.

The Treasury Department has said the government will run out of sufficient funds to pay all of its obligations, including interest and redemptions on Treasuries, on October 17th. The Congressional Budget Office has estimated that date will be somewhere between October 22nd and October 31st.

A technical default would be if the government deferred payment on some obligations but paid interest and redemptions on Treasury notes. An actual default would occur if the Federal government missed an interest payment or redemption of a Treasury note, bill or bond. Either would send shockwaves through the world financial system.  

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

 

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