World keeps faith in Treasuries if not U.S. politics

U.S. Treasury Department U.S. Treasury Department

Finance chiefs from nations holding more than $1.3 trillion of Treasuries signaled no plans to sell even as the U.S. faced condemnation for the fiscal fight plaguing the world’s largest economy.

Policy makers from Japan, India, Russia and Saudi Arabia expressed faith in the ability of the U.S. to pay its bills as the potential for default dominated the annual meetings of the International Monetary Fund and World Bank, which ended yesterday in Washington.

“There’s no other way than for the U.S. government itself and the U.S. Congress to sort it out,” Japanese Finance Minister Taro Aso told Bloomberg Television’s Sara Eisen. Fahad Almubarak, chief of Saudi Arabia’s central bank, told reporters that “the U.S. current crisis will go away and we think its effect won’t be lasting on our investments.”

The combination of criticism and confidence was echoed by Pacific Investment Management Co.’s Chief Executive Officer Mohamed El-Erian, who said the manager of the world’s biggest bond fund is still holding short-term Treasuries in anticipation of lawmakers increasing the $16.7 trillion U.S. debt ceiling.

“When push comes to shove there will be an agreement,” El-Erian told a financial industry conference during the IMF meeting. A default would “trigger failures” in collateral markets and “be a big blow to the economy,” he said.

Yields Rise

Rates on Treasury bills maturing through the end of the year rose last week as lawmakers sought a short-term compromise. Rates on bills due on Nov. 29 climbed 12 basis points, or 0.12 percentage point, to 0.16% last week, according to Bloomberg Bond Trader prices. Yields on benchmark Treasury 10- year notes gained four basis points on the week to 2.69%.

While Treasuries aren’t trading today due to the Columbus Day holiday, futures rose after Senate leaders yesterday held their first negotiating session since the government shutdown began Oct. 1. Ten-year U.S. Treasury future contracts for December delivery rose 5/32 to 126 8/32, based on electronic trading at the Chicago Board of Trade.

The Standard & Poor’s 500 Index fell 0.5% to 1,695.03 at 9:57 a.m. in New York. The Stoxx Europe 600 Index slipped less than 0.1% to 311.44.

Treasury Secretary Jacob J. Lew used the presence of foreign counterparts to highlight the risks of inaction, saying the U.S. is the “anchor of the international financial system” and its assets enjoy a haven status.

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