While negotiations between the American president and the leader Republicans from Congress for her prickly theme increasing the credit limit from the existing level of 31.4 trillion. dollars, the deadlines are suffocatingly compressed. United States Secretary of the Treasury Janet Yellen he constantly reminds that the money is in his treasury american state enough until June 1, when the government will be forced to default unless an agreement is reached between the White House and the Republicans. Therefore, despite statements about the optimism of both Joe Biden as well as his Kevin McCarthy that now the situation in the negotiations is better compared to what it was a few days ago, its banks Wall Street they are trying to prepare for the possibility of a default.

The US financial industry has repeatedly prepared for a possible crisis, most recently in September 2021. months, the remaining weeks until June 1. As they comment, Citigroup CEO Jane Fraser calls the current debt ceiling tug-of-war “significantly more worrisome” than similar situations in the past, and JP Morgan Chase CEO Jamie Dimon reports that the largest U.S. bank is calling extraordinary meetings every week to consider any implications. dead end and stop paying.

So, banks, stock exchanges and trading floors are feverishly gearing up for a major turmoil in the US Treasury market. They are looking at how to manage U.S. Treasury bond payments, how critical capital markets will react, how they can ensure sufficiency. technologies and operation of technological systems, as well as the functionality of their personnel. At the same time, they are looking for ways to provide sufficient liquidity to handle large trading volumes while controlling the potential impact on their clients’ contracts.

Investors heavily dependent on bonds warn that it is essential for banks to maintain a high level of liquidity in order to cope with large and sudden changes in the value of their assets and not be forced to sell assets at the most inopportune moment.

Treasury Secretary Janet Yellen keeps reminding us that there is enough cash in the US Treasury until June 1st.

Bond trading platform Tradeweb said it is currently in discussions with its clients, industry groups and other market players about its contingency plans. In the meantime, brokerage houses and the Financial Markets Association (SIFMA) have compiled and are studying a manual with detailed instructions outlining how market participants, namely the Federal Reserve, will communicate with each other the day before and in the first three days. days after the default of New York, the Federation of Fixed Income Clearing (FICC), clearing banks and US Treasury bond dealers.

“It’s challenging because what’s happening is unprecedented,” said Rob Toomey, general manager of SIFMA, who emphasizes that “we’re trying to develop a plan with our members to help them deal with the tumultuous situation.”

The reason, of course, is that US Treasury bonds are the backbone of the global financial system, and it is difficult to fully appreciate the extent of the damage that a default can cause. First, it is assumed that trading in the secondary market will be very difficult.

Meanwhile, Wall Street executives, who also served as advisers to the US Treasury Department, are warning that the dysfunction in the US Treasury market will quickly spread to the derivatives, housing and commodities markets as investors question the reliability of the bonds to be used. as collateral to secure transactions and loans. And market analysts note that financial institutions may ask partners to replace any defaulted bonds.

Even a small violation of the superpower’s debt limit can lead to a sharp rise in bond yields, falling stock prices and general turmoil in the markets. And first of all, what the rating agency Moody’s warned about will happen: the markets for short-term financing will “freeze”.