Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. If you want more signs that Wall Street is getting anxious about the debt limit, take a look at short-term Treasury securities. Investors want to avoid getting stuck with assets that could be exposed to a possible U.S. government default. Yields on one-month Treasury bills, which fall as their price climbs, dropped sharply in recent weeks as investors flocked to securities that mature before the X-date — which some big banks now estimate will land much sooner than previously expected. Meanwhile, yields on three-month Treasury bills are spiking. The spread between one-month and three-month yields is the widest it’s ever been. The reason: “Once the X-date itself is known — or at least estimated with some degree of confidence — you do see Treasury bills that mature just after that estimated X-date demonstrate a risk premium,” Daleep Singh, the chief global economist at PGIM Fixed Income and President Joe Biden’s former deputy national security adviser for international economics, told MM on Monday. Treasury is expected to give Congress an update later this week on how much runway is actually available for lawmakers and the White House to avoid default. The clock is ticking on Speaker Kevin McCarthy’s bid to rally House Republicans behind a debt limit bill before the chamber breaks for a week-long recess. So, with market-moving debt limit events on the calendar, where else should policymakers be looking for signs of woe on Wall Street? “If the sequence holds, you begin to see more dislocation in repo markets and then credit markets more generally,” Singh said. “Then finally, equity markets and the dollar. But the broader asset classes — like equities — tend to react right at the last minute.” For now, that hasn’t happened. Most of the activity we’ve seen around the debt limit fracas has been confined to quirky corners of the bond market. And while there are signs that top financiers have become alarmed, the stock market isn’t reacting as if there’s any acute pain ahead. “Market pain is necessary to give politicians cover for a face-saving compromise to raise the debt ceiling,” he said. “Right now, I don't see a forcing mechanism for Congress. And that worries me because the drama can end differently than before if this continues.” IT’S TUESDAY — Our jobs are a lot less painful when you send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com.
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