Nell Mackenzie, Harry Robertson
LONDON (Reuters) – Wall Street posted a solid opening outlook on Tuesday, but there are signs of broader market-wide optimism that insurance costs against U.S. debt defaults will fall and a U.S. debt ceiling crisis could loom. The safe-haven dollar fell. Avoided.
U.S. markets reopened on Tuesday after Monday’s holiday, reacting for the first time to a deal over the weekend to suspend the $31.4 trillion U.S. debt ceiling until 2025 while keeping some costs unchanged.
The US House Rules Committee has announced that it will meet at 3:00 pm ET (1:00 pm Japan time) to discuss the debt ceiling bill. A small number of Republican lawmakers have expressed opposition to the deal, suggesting the bipartisan effort could face a difficult path through Congress.
For now, though, investors seem to be looking on the bright side.
US stocks were expected to rise, led by S&P futures gaining 0.54% and Dow Jones futures gaining 0.18% in pre-market trading. Global stocks were slightly higher.
US 10-year Treasury yields fell about 10 basis points (bp) to 3.72% and 30-year yields fell 8 basis points (bp) to 3.90%. Bond yields vary inversely with price.
Cuts in government spending plans to cap U.S. debt levels have left markets slightly questioning the country’s creditworthiness, said Florian Hierpo, head of macro at Lombard Odier Asset Management. said it was possible.
He said the news of a possible deal was good news for bonds as well as stocks.
“What’s happening since yesterday shows where the debt ceiling premium was really priced in. Mostly in bonds,” Hierpo said.
This optimism has spilled over to other assets such as derivatives and currencies.
The dollar index, which measures the currency against six national currencies, stabilized at 104.3 after rising to a two-month high.
Meanwhile, the cost of insuring exposure to US debt defaults has fallen. Data from S&P Global Market Intelligence showed one-year credit default swaps contracted 15bps from Monday’s close to 118bps.
Antoine Bouvet, senior rates strategist at ING, said Tuesday’s rally in bonds had little to do with the debt ceiling and may have more to do with the thin trading around Monday’s holiday.
“We do not necessarily blame the Treasury rebound on the debt ceiling deal,” Bouvet said. There are,” he said.
Energy markets were more pessimistic that far-right Republican lawmakers could block the deal.
Brent crude last fell 2% to $75.54 a barrel. US West Texas Intermediate (WTI) crude fell 1.89% to $71.31.
(Reporting by Nell Mackenzie and Harry Roberston; Editing by Dhara Ranasinghe and Sharon Singleton)
