Wednesday, June 8, 2011

The T-Bill that Broke America!

Please meet CUSIP number 9127953B5.

It was issued on 3 February 2011.

And it currently pays investors a "princely yield" of 0.018%, for the (ahem) ‘risk’ of holding it.  This is the first T-bill scheduled to default if the debt ceiling is not raised.

Fitch Ratings:
The first test for a marketable (and Fitch-rated) Treasury security after 2 August is a USD30bn Treasury bill maturing on 4 August. In the event that this Treasury bill is not repaid in full on that date, Fitch would mark the default by downgrading the specific issue rating to ‘B+’ from ‘AAA’, the highest rating for a security in default on the expectation of full or near full recovery. However, Fitch would not necessarily place the US sovereign rating into default if it judged at the time that the non-payment would be cured in full (including the payment of accrued interest) before the next Treasury bill matures on August 11 (USD27bn).

If maturing Treasury bills are refinanced but the Treasury is unable to honour USD27bn of Treasury notes and USD25bn of coupon payments payable on some USD1trn of Fitch-rated Treasury securities due on 15 August, the US sovereign rating would be placed into the ‘Restricted Default’ (RD) category until the default event was cured.

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