WASHINGTON |
WASHINGTON (Reuters) - As Republican lawmakers threaten a showdown over the federal debt limit, bond investors are calculating when they should start to get nervous.
The answer: early March, and probably, really worried in April.
Wall Street economists, looking at recent seasonal spending and revenue trends, estimate the $14.3 trillion debt limit will be reached toward the end of March or sometime in April if Congress fails to raise it before then.
Hitting the limit could force shutdowns of federal offices, as happened in 1995, threaten payments for Social Security and other federal benefits, or even cause a default on federal debt payments.
"Bondholders don't like excitement. They like to be paid and do not like to read a lot of stories about possibly not getting paid," said Lawrence Dyer, head interest rate strategist at HSBC Securities in New York.
An effective default -- the worst-case scenario -- would cause long-term damage to U.S. access to debt markets, Dyer said, costing the United States its prized AAA credit rating and raising borrowing costs significantly, adding to budget problems.
No one is predicting that things will go that far, but Rep. Paul Ryan, the new chairman of the House Budget Committee, said on Wednesday that he is not interested in raising the debt limit without "concessions on spending.
Obama administration officials in recent days have issued stern warnings to Republicans against "playing chicken" with U.S. debt market credibility.
"The impact on the economy would be catastrophic," White House economic adviser Austan Goolsbee warned on Sunday.
As of Tuesday, the U.S. public debt was $332.6 billion below the debt limit. The Treasury Department has forecast net new borrowing of $431 billion in the current quarter and is averaging about $21.8 billion in monthly interest payments on federal debt so far this fiscal year.
Many factors will affect when the debt limit is reached, including tax collections and sales of assets acquired in taxpayer-financed bailouts of distressed firms.
January is typically a strong month for corporate tax collections, and stronger-than-expected profit growth could boost revenues.
However, Zach Pandl, a Nomura economist in New York, added that recently enacted tax cut extensions and investment credits could delay filings as firms sort through the changes.
DELAYING A RECKONING
The Treasury has a long list of tools it can employ to stave off a debt ceiling breach, but analysts say these would likely only delay its day of reckoning by weeks, not months.
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