America is playing with fire with the debt ceiling

Madrid. America has been playing with fire these past few days. This is how credit and fixed income investors perceive it. Without going any further, US one-month bills offer more than 5.5% yield today compared to 4% at the start of the year and 0.5% just a year ago. In addition, 5-year credit default swaps, derivatives that allow measuring the probability of default of a particular issuer, have risen in recent days above 75 basis points, which has not happened since 2008 and 2011.

And all again because of political controversy. The country faces a suspension of payments next June if the Democratic and Republican parties do not reach an agreement to raise the debt ceiling. which was reached last January. The Republican-majority House of Representatives on April 26 approved a bill to raise the debt limit in exchange for broad cuts in public spending, but Democrats do not want to stipulate anything to the other and the White House.

Now, regardless of the short-term fear, It is important to note that this is not the first time this has happened.. In fact, since the 1970s, the US Congress has approved no fewer than 78 times to increase or suspend the debt ceiling, thus ensuring that the country will never default on its debt.

For this reason, and by way of conclusion, we believe that if an agreement is reached to increase the debt ceiling and avoid a possible default, It might be interesting to buy short term debt for the country given the yields on offer and USD will be favorably favored in the short term Due to oversold this year (-3% for the Japanese yen, -4% for the pound sterling or -3.5% for the Swiss franc) and the flow problem due to the situation that institutions may take by reinvesting in dollar-denominated assets.

Juan Jose del Valle is an analyst at the Activotrade Securities Agency