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Bond Market Not Focused on Debt-Limit Deadline, Cantor Says

House Majority Leader Eric Cantor said Wall Street investors monitoring Congress’s debt-limit negotiations are more focused on spending cuts than on whether lawmakers raise the government’s borrowing authority before Aug. 2.

“The markets are smarter than to think a date is what makes a difference,” the Virginia Republican said today on CNBC. Investors are “really” concerned about “whether there is going to be movement on actual reform” of budget and entitlement spending to reduce the deficit, he said.

House Republicans are demanding trillions of dollars in spending cuts and budget savings as a condition for raising the debt ceiling. The $14.3 trillion borrowing limit was to have been reached yesterday, though Treasury Secretary Timothy Geithner says he can juggle accounts to continue borrowing until Aug. 2.

Cantor said he wasn’t concerned about a negative reaction by the bond market if talks between congressional leaders and President Barack Obama continue closer to the date Treasury says it can no longer borrow money to pay U.S. obligations.

“As long as we are being focused and smart about the proposals we’re focusing on, I believe the markets will respond positively,” Cantor told reporters during a visit in Chicago to the Global Command Center of CME Group Inc., the world’s largest futures market.

Double Dip

Geithner last week warned that failure to raise the debt limit risks triggering a “double-dip” recession.

“Even a short-term default could cause irrevocable damage to the American economy,” Geithner said in a May 13 letter to Democratic Senator Michael Bennet of Colorado.

“I hope that we can get it done before the day comes where Secretary Geithner says the alarm bell goes off,’ Cantor, one of the congressional negotiators meeting with Vice President Joe Biden on the issue, said in the CNBC interview.

Still, Cantor said statements by hedge fund manager Stanley Druckenmiller that a technical default by the U.S. wouldn’t necessarily trigger market chaos “were something we need to heed.”

Druckenmiller, in a Wall Street Journal interview published May 14, said a “technical default would be horrible, but I don’t think it’s going to be the end of the world. It’s not going to be catastrophic.” The investor said that “what’s going to be catastrophic is if we don’t solve the real problem.”

‘That Day Is Gone’

Cantor said on CNBC the size of the increase in the debt limit “all comes down to how much we can affect reform, because we are not interested in kicking the can down the road.” He said, “That day is gone.”

Based on his own conversations, Cantor said “what investors are looking at” is “are we going to get our act together, are we going to reduce spending” and “reform those entitlement programs to manage down the debt.”

Congress will only vote to raise the debt ceiling “if there is at least a commensurate, if not more, reduction in spending through the reforms we are offering,” he said.

Amid debate on the deficit in Washington, yields in the U.S. are lower now than when the government was running a budget surplus a decade ago. The 10-year note yields dropped two basis points, or 0.02 percentage point, to 3.13 percent at 1:10 p.m. in New York, according to Bloomberg Bond Trader prices.

To contact the reporters on this story: James Rowley in Washington at 1913 or jarowley@bloomberg.net; John McCormick in Chicago at jmccormick16@bloomberg.net

To contact the editor responsible for this story: Mark Silva in Washington at Msilva34@bloomberg.net.

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