Analysis-US political brinkmanship undermines Treasuries' safe-haven status

Davide Barbuscia

Wed, Mar 19, 2025, 3:04 AM 4 min read

By Davide Barbuscia

NEW YORK (Reuters) - Investors person been flocking to U.S. Treasuries arsenic a harmless haven owed to marketplace turmoil fueled by President Donald Trump’s commercialized policies, but a looming indebtedness ceiling statement and ongoing governmental brinkmanship are stark reminders that adjacent the world's eventual risk-free plus is not immune to cracks.

The $28.5 trillion U.S. Treasury marketplace is the world's largest enslaved market, known for its liquidity and stability, allowing investors to rapidly determination ample sums of money. Yet determination are a fig of issues that could situation views connected the information of U.S. indebtedness securities.

Chief among them is the indebtedness ceiling, a self-imposed borrowing headdress that requires legislature support to beryllium suspended oregon raised. A indebtedness ceiling showdown successful 2023 spurred a sell-off successful stocks and bonds, pushed the U.S. to the brink of default and wounded its recognition rating.

Rising indebtedness levels successful caller years person undermined the sovereign recognition profile, said Monica Defend, caput of Amundi Investment Institute.

"But the bigger menace is the anticipation of a method default owed to governmental arguments implicit the indebtedness ceiling," Defend said. In 2023, Congress lifted the indebtedness ceiling until January 1, 2025, meaning lawmakers indispensable revisit the contented aboriginal this twelvemonth to forestall a default. Some analysts estimation the X date, erstwhile the authorities runs retired of funds to conscionable each of its indebtedness obligations, could beryllium astir July oregon August.

Meanwhile, the menace of a authorities shutdown, averted astatine the past infinitesimal past week, was a reminder for investors of the ongoing legislature brinkmanship that has contributed to planetary ratings agencies' moves to downgrade the United States' erstwhile top-tier recognition rating.

Despite Republican power of Congress, governmental polarization remains a cardinal concern, arsenic argumentation reforms often necessitate bipartisan consensus, said a root astatine a large ratings agency, speaking connected information of anonymity.

Harrison Fields, a White House spokesperson, said Trump is committed to restoring fiscal credibility.

The caller autumn successful semipermanent U.S. involvement rates since helium returned to the White House connected January 20 is simply a motion of marketplace assurance successful his policies, Fields said, pointing to a diminution successful the word premium, which measures what investors complaint for holding indebtedness for a longer play of time, arsenic further evidence.

INSTITUTIONAL STRENGTH

Treasuries person rallied precocious arsenic Trump's unpredictable tariff moves stoked fears of a commercialized warfare and imaginable recession, driving investors into the perceived information of U.S. authorities debt. At the aforesaid time, sovereign recognition default swaps (CDS) - a cardinal measurement of recognition hazard - person edged to their highest since aboriginal November, erstwhile the outgo of insuring against a default roseate amid predetermination and indebtedness ceiling jitters.