Investors were betting on Wednesday morning that a solution to the debt-ceiling crisis is near.
With the the Senate moving forward with a plan to open the government and raise the government’s borrowing limit, the Standard & Poor’s 500-stock jumped after the opening bell, rising 1 percent, or 19.09 points, to 1717.15 in recent trading. The Dow Jones industrial average was up 180 points, or 1.2 percent.
At the same time, investors have been buying back the short-term government debt that comes due in the next few weeks after selling it off last night on fears that an agreement in Congress was breaking down. The yield on the Treasury bill maturing on Oct. 31 dropped to 0.41 percent on Wednesday morning from 0.53 percent on Tuesday. The dollar was also gaining in value against other major currencies.
Wall Street has been nervously watching the countdown to Thursday, when the Treasury Department has said it will exhaust its ability to borrow more money. The government still has some cash on hand to pay its bills, and it is uncertain at what point the government would not have enough money to pay all of its bills. While the House looks set to vote on the Senate agreement, there are still a number of stumbling blocks that could delay progress.
“The current effort in the Senate is likely to be seen as the last best chance to avoid a debt default later this month, and a failure to get full passage in the coming days will likely result in a significant reaction in the market,†Millan Mulraine, a researcher at TD Securities wrote on Wednesday morning.
The market for Treasury bills is being watched closely because the bills play a central role in the financial system, facilitating many other short-term lending markets. In preparation for a potential default, the Chicago Mercantile Exchange said on Tuesday that it would require investors to post additional margin when dealing with interest rate products.
