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Bridgewater Associates: Failure To Raise Debt Ceiling Could Pose Some Problems

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"As we in detail go through some of the largest holders of Treasury securities and the various places where Treasuries are used in collateral and index agreements, it looks to us like there is a fair amount of leeway to not immediately react in the event of a default. It doesn’t look like most of these entities would need to either immediately liquidate their holdings or renegotiate contracts where Treasuries are used as collateral due to ratings downgrades. While it looks this way, we can’t be certain of this, because there are so many financial interconnections where a ratings downgrade or default on Treasuries could create unforeseen knock-on effects. And of course, there is the risk, albeit small, of a more substantial loss of confidence in whether the US will continue to pay on Treasuries, which would become an increasing risk if the debt ceiling negotiations drag on for a while after the official default. That could lead to significant liquidation of holdings and logistically disastrous renegotiations of contracts." [Zero Hedge via HNM]


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