Obama taunts and cajoles, but still no debt deal

Another day has passed in Washington without a deal to raise the debt ceiling as the nation edges ever closer to a default.

President Obama raised the rhetorical temperature last night with a public address which warned republicans off their plan of reaching a deal in two parts. He claimed they were precipitating a 'deep economic crisis' and warned that it is 'no way to run the greatest country on earth.'

US Treasury bills were sold off throughout yesterday by what on the face of it was only a modest amount. The 30-year paper saw its yield rise eight basis points to 4.34%. Meanwhile Swiss francs continued their march as the safe haven as choice, rising sharply against the dollar.

Obama's move proved enough to buoy Asian stockmarkets somewhat despite the S&P 500 losing 0.6% in its trading with the MSCI Asia Pacific index rising some 0.2%. This despite the fact that Obama's appeal was immediately met with a kick-back from the republican house majority leader John Boehner who calimed Obama was seeking a blank cheque that was 'not going to happen.'

American analysts are struggling to effectively price in the risk of a default which to most remains an unthinkable if increasingly possible outcome. The chief investment officer of Blackrock Bob Doll yesterday night said: 'The worsening political gridlock and polarisation around these issues has drawn the debt-ceiling-related deadline of 2 August into sharp focus. Virtually every major party in the debates agree that a US debt default is unthinkable since no one wants to take the political hit for the financial chaos a default would cause. IN our view, the possibility of an outright default is extremely low and we are expecting some sort of short-term debt ceiling expansion,;

Yet it remains unclear whether a patched together deal would satisfy the ratings agencies. Some democrats are warning that republican plans to only extend the ceiling by an amount that would buy around six-months would still threaten the AAA-rating attached to debt. US Treasuries are on negative watch from Standard & Poor's for the first time in history.

Such a move however would clearly be much less serious than an outright default and so far investors have seemed oblivious to warnings continuing to use T-bills as a safe haven.

Capital Economics has also drawn reassurance from the view that even if the crucial 2 August deadline is missed for reaching a deal it would likely be possible for the US Treasury to resort to contingency plans for at least a short period of time.

Its US economist Julian Jessop said: 'If the deadline does pass without agreement, the Treasury would almost certainly decide to service debt for as long as possible and focus on make savings elsewhere instead. Finally, it would be astonishing if the Treasury did not have some further contingency plans to prevent or at least delay a default.'

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Quinn Bowman is a freelance journalist based in Washington DC and has been covering the on-going negotiations between the White House and Congress.