Recap 10-08-13: Market Stress and an Interesting New Poll


US Treasury bills sold off sharply today. 4 week bills were auctioned at 35bps, the highest October 2008. (Although they came back down below 30bps later) The market is starting to price in the probability that the debt ceiling is not raised until 11/15 or later, as the 11/14 TBill yield is quite elevated. The front ends of money market curves globally have moved over the past few days. Euribor futures maturing over the next 12 months have sold off ~5bps.

Equities are obviously down sharply today, but have things gotten “bad enough?” Obviously, it’s pretty hard to handicap, but given that the peak to trough move on the S&P is just ~4% so far, and we are more than a week away from 10/17, the answer seems more likely to be “not yet,” although statistically, a bounce looks more likely than not in the near term.

Separately, this recent Pew Poll shows that citizen (though not necessarily voter) views are entrenched, while independents are split:

54 percent of all Republicans (and 64 percent of Tea Partiers) believe the country can go past the debt-limit deadline without causing major problems.


Note though that sampling errors are reasonably large:

The main take away for me is that the impasse in Congress is a SYMPTOM, reflecting the root cause: a strong disagreement by the electorate at large of how to move forward. And it’s not just the right with strong views. The most emailed article on the NYTimes website today is entitled: “Rich People Just Care Less.”


  • UK RICS House Price Balance jumped to 54 vs 45 exp and 40 prev
  • Australia NAB Business Confidence jumped to 12 in Sept vs 6 prev
  • China HSBC Service PMI declined to 52.4 vs 52.89 prev
  • Japan Eco Watchers Outlook Survey improved to 54.2 vs 50.9 exp and 51.2 prev
  • German Trade Balance declined to 13.1bn in Aug vs 15 bn exp and 16.1bn prev
  • Canada Housing Starts improved to 193.6 vs 185 exp and 180.3 prev


  • No sign of progress in Washington overnight. The Washington Post said no sustentative talks are taking place behind the scenes and “leadership in both parties will probably choose to stay the course for the rest of this week.”
  • Hilsenrath in the Journal said “privately, Stein and two other governors, Powell and Duke, were a driving force behind efforts to limit QE’s growth.” He said the decision not to taper followed a tense six month negotiation period with the minority wing pressing Bernanke to articulate an exit strategy
  • Several Republicans have taken the stage to say that the Treasury will not default on October 17th, they have more time. “I think we need to have that moment where we realize [we’re] going broke,” Mr. Yoho told the Washington Post. “I think, personally, it would bring stability to the world markets.”
  • Biden’s been frozen out – Politico

Upcoming Data:

  • Wed: UK IP, FOMC Minutes, Australia CPI, Employment
  • Thu: BoE
  • Fri: Canada Employment, UMichigan Confidence, BoC Survey
  • Mon: US Holiday, China Trade Balance, AU Home Loans, China CPI, RBA Minutes
  • Tue: UK CPI, German Zew, Canada Existing Home Sales,