The increased uncertainty over the Federal debt limit has “dampened” structured finance issuance, according to Standard & Poor’s.
Global structured finance issuance was half the YTD weekly average last week. “The ABS calendar was empty during ABS East, but issuance is resuming at a subdued pace,” said analysts at S&P.
DBRS today placed the U.S. long-and short-term foreign and local currency debt ratings under review with negative implications as a result of the growing risk that the nation will default on its debts.
Although the U.S. has never defaulted on its debts, the prolonged shutdown increases the risk of a U.S. default. "While Wall Street fully expects Congress to raise the debt ceiling and avoid putting the country at risk of a recession as a result of the U.S. defaulting on its debt, the probability of the unthinkable scenario has increased since the government shutdown began,” said James Frischling, President and Co-Founder of NewOak on Monday.
DBRS said that the U.S. government would default on its debt if the nation’s $16.7 trillion cap on government borrowing isn’t raised.
The ratings agency said in a press release that the action is a result of “growing risk of a selective default by the federal government on its debt securities as a result of the lack of an agreement to raise the statutory limit on federal debt (the debt ceiling).”
DBRS rates the U.S.’s long-term foreign and local currency debt AAA, and its short-term foreign and local currency debt ‘R-1 (high)’.
“If the debt ceiling is not raised or eliminated by October 17, it is unclear how the Treasury would operate,” explained DBRS. “While a low probability, missing payments on selected government securities cannot be ruled out.”