The June 1 deadline, which the US Treasury Department has set as the deadline for the country’s technical bankruptcy, is perilously close. Yet negotiations between the American President Joe Biden and President of the House of Representatives, Kevin McCarthy, about raising the debt limit, although it is reportedly moving forward, has not yet yielded results. So there is one question on Wall Street: what would happen if the unthinkable actually happened and USA go to suspension of payments;

There has always been an impression in investment circles that if claims cannot be repaid, the Ministry of Finance will give priority to repayment of interest and capital. government bonds. This is a $24 trillion market. dollars, which acts as a barometer for the cost of international borrowing, as a guarantee in financial markets, and as a key part of asset management. However, this scenario has not been implemented in practice, which calls into question the possibility of its implementation.

Some believe that the consequences may not be so dramatic, because after the 2011 crisis, a certain process was established in the market in case the money ran out. However, its CEO JPMorgan, James Dimon, warned that even approaching such a situation comes with risks and unforeseen consequences. Yes team Treasury Market Practice Group (TMPG)who helped shape the emergency process, warned that if payments were delayed, the consequences would be severe.

According to Bloomberg, the following scenarios are possible:

The US Federal Reserve should continue to inject liquidity into stock markets and possibly stop the current quantitative tightening program. At the same time, within the framework of this procedure, the Ministry of Finance must announce before 22:00 that it is not able to cover the obligations of the next day. Thus, the maturity date of the next day’s claims will be extended by a day.

A delay in payments for several days would mean a downgrade in the US credit rating.

A delay in payment for several days would mean a downgrade of the US credit rating, the analyst said. Moody’s. Of course, investors will not suffer a loss (ie a haircut), which is important, he said, assuming that in this case the deal on the debt will be accelerated.

Delays in payments on specific securities do not mean widespread default, so the immediate impact is likely to be relatively limited. Some believe that it will be difficult for fund managers to abandon government bonds, while others fear a domino effect.

Big danger

OUR TMPG stated that some market participants may not be able to follow the emergency procedure, while others can only do so by seriously interfering in trading, creating serious operational risks. “It is not clear what will happen in real-time markets. The biggest risk is what will happen to the price and attractiveness of government bonds, said Robert Toomey of the Securities Industry and Financial Markets Association.

In 2013 Powell, then a member of the Board of Directors. her fedstated that “the real risk is a failed auction, that is, the loss of access to markets at any cost.” US Secretary of the Treasury Janet Yellenhas not yet specified what will happen if the money runs out, but “hard decisions will have to be made if the debt limit is not raised”, as he already indicated.