Conditions Little Changed on Competing Debt Plans: Reality Check

U.S. financial conditions are little changed, hovering at the highest level in two months, as Congress wrangles over competing plans that would end a shutdown and prevent the government from missing debt payments.

The Bloomberg U.S. Financial Conditions Index (BFCIUS) increased 0.02 to 1.47, the highest since Aug. 13. The gauge measures stress in the markets by combining everything from money-market rates to yields on government and corporate bonds to volatility in equities. During the debt-ceiling debate of August 2011, the index fell as low as negative 1.631.

The measure has risen from last week’s one-month low as the House and Senate prepare plans that each would fund the government through Jan. 15, 2014, and suspend the U.S. debt limit until Feb. 7. Treasury Secretary Jacob J. Lew said before Congress this month that the U.S. needs to boost the debt limit by Oct. 17 or risk defaulting on its payments.

“Most investors are trying to sit on their hands and not do anything,” Robert Grimm, the head of corporate trading at Odeon Capital Group LLC in New York, said in a telephone interview. “This is taking a lot longer and looking a lot sloppier than anybody ever expected.”

The emerging contours of an agreement would stave off a potential default, open shuttered federal services and change the immediate deadlines in favor of three new ones over the next four months, including a Dec. 13 target date for a budget conference between the House and Senate.

Treasuries

The rate on bills due Nov. 21 fell 9 basis points to 0.08 percent after rising to 0.21 percent on Oct. 11. It’s averaged 0.04 percent this year.

The rate on bills due Feb. 20 rose 8 basis points, more than tripling to 0.12 percent. It touched zero on Oct. 2.

Treasury 10-year note yields rose 0.03 to 2.72 percent as of 12:51 p.m. in New York.

Rate Swaps

The U.S. two-year interest-rate swap spread, a measure of debt-market stress, fell 0.5 basis point to 13.25 basis points. The gauge typically narrows when investors favor assets such as corporate bonds and widens when they seek the perceived safety of government securities. The measure has dropped from this year’s high of 19.55 on June 21.

Default Swaps

A gauge of U.S. company credit was little changed. The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, decreased 0.23 basis point to a mid-price of 76.52 basis points, according to prices compiled by Bloomberg. The index, which typically falls as investor confidence improves and rises as it deteriorates, has averaged 81.7 this year.

Currencies

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, rose 0.2 percent to 1,013.19. The index has traded in a range of 1,007.9 and 1,038.63 in the past three months. The greenback was little changed at 98.61 yen. The Japanese currency gained 0.4 percent to 133.12 per euro.

Stocks

The Standard & Poor’s 500 fell 0.2 percent to 1,706.42 at 12:55 p.m., declining from the highest level in three weeks. The Dow Jones Industrial Average dropped 46 points, or 0.3 percent, to 15,255.26.

Volatility

The CBOE Volatility Index (VIX), or VIX, gained 5.35 percent to 16.93, below last week’s high of 20.34. Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE index was at 77.11 as of the end of last week, compared with the average this year of 72.46.

Currency swings as measured by the JPMorgan Global Volatility Index fell for a fourth day to 8.29, versus a 2013 average of 9.36.

Energy, Commodities

West Texas Intermediate crude oil for November delivery slid $0.73, or 0.71 percent, to $101.68 a barrel on the New York Mercantile Exchange.

Gold futures for December delivery fell 0.4 percent to $1,271.1 an ounce on the Comex in New York.

Copper futures for delivery in December rose 0.15 percent to $3.3080 a pound on the Comex in New York.

To contact the reporter on this story: Matt Robinson in New York at Mrobinson55@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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