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However, because those mid-September bills come due in mid-October, the yield, or compensation, that investors are demanding has shot up. For the one-month Treasury bill, it went as high as 0.35 percent earlier this month.
Investors fear they might get stuck holding these T-bills and when they come due, the U.S. government won’t have the cash to pay them back. At 0.35 percent, these investments are still considered safe, but it’s startling to see investors lose that much confidence in one type of U.S. government investment so quickly.
Are all investors nervous?
No. While bond investors are nervous about the short term, yields for Treasurys that take 10, 20 or 30 years to mature have remained stable during the debt fight. It is a sign that investors are confident U.S. lawmakers can come up with a plan to keep the federal government paying its debts over the long term. The yield on the benchmark U.S. 10-year Treasury note, for example, was 2.71 percent in early trading Tuesday, roughly where it was in mid-September when Wall Street began to worry about a shutdown and default.
If the United States were to default, how could it affect me?
The biggest threat is that the government would soon fail to make interest payments on its debt. Any missed payment would trigger a default. Financial markets would sink. Social Security checks would be delayed. Eventually, the economy would almost surely slip into another financial crisis and recession.
A default could also translate into higher borrowing costs for consumers, on everything from auto to home loans. Why? Investors would consider U.S. debt a riskier investment and demand more compensation. Bond yields would likely rise, pushing interest rates higher on loans whose rates are linked to U.S. Treasurys, which is basically everything. It would make borrowing for the U.S. government more expensive, and cost us more as taxpayers. How much bond yields could rise is unknown. There’s also a strong possibility that a U.S. default may impact bank-to-bank lending.
Banks often use Treasurys as collateral when they borrow from other banks. This "repo" market is massive, roughly $5 trillion by some estimates, and is used by nearly every bank to fund day-to-day lending. Signs have emerged that some banks and money market funds have stopped accepting U.S. Treasurys as collateral, or are requiring more collateral to borrow.
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