WASHINGTON (MNI) – The following is a roundup of key developments
and events Friday on the ongoing stand-off over the U.S. debt
ceiling:

* In a statement Friday, the Congressional Budget Office said
excluding the effects of the caps on funding for operations in
Afghanistan and Iraq and similar activities from Senate Majority Leader
Harry Reid’s July 25 proposal would yield 10-year savings of $909
billion, including debt-service effects, $8 billion less (over the
2012-2021 period) than estimated for House Speaker John Boehner’s July
27 proposal.

* President Barack Obama Friday said he is confident a deal to
raise the debt ceiling will get done by August 2, the day it is
estimated the U.S. will exhaust its borrowing authority, and said there
are multiple ways a deal can get done. “There are plenty of ways out of
this mess, but we are almost out of time,” Obama said in prepared
remarks to reporters from the Diplomatic Room in the White House. House
Speaker John Boehner is modifying a bill proposal that would raise the
debt ceiling, and might try to introduce it to the House Friday,
however, Obama said it has “no chance of becoming law.”

* Senate Majority Leader Harry Reid Friday said he is ready to
move his debt ceiling bill later today and implored Senate Minority
Leader Mitch McConnell to join him in crafting a bipartisan budget
accord. In a briefing, Reid ripped into the new House Republican debt
limit plan, calling it a “right wing leading” bill that is unacceptable
to all Senate Democrats. He ridiculed as “bizarre” the House Republican
plan’s new requirement that the second installment of the debt ceiling
increase would be conditioned on Congress passing and sending to the
states a balanced budget constitutional amendment.

* The House is expected to vote on its revised debt ceiling bill
between 8 p.m. and 9 p.m. EDT Friday.

* The tone in U.S. investment grade credit default swaps was
weak Friday as the Washington lawmakers have yet to solve the debt limit
impasse. In late trade Friday, the latest from Capitol Hill was that the
Obama Administration would consider lifting the debt limit for a few
days if Congress needed time to finalize an agreement on the raising the
debt ceiling. Credit protection for 5-years on the U.S. opened flat at
65.125 basis points but widened to 66.50 bps, a new all-time wide and
compared to Thursday’s all time wide close of 65.125 bps.

* The U.S. Treasury Friday said given the ongoing discussion
surrounding the statutory debt limit, it cancelled the normal one-on-one
meetings with half of the primary dealers. In their place, Treasury held
one meeting for all primary dealers, including those not previously
scheduled to meet with Treasury. There was a general consensus among all
participants that Congress should act as quickly as possible to raise
the debt ceiling for as long a period as possible to lift the cloud of
uncertainty from the economy.

* A spokesperson for the Investment Company Institute told
Market News International Friday that “While we cannot speak to specific
funds’ plans, I think it’s safe to say that anyone involved in asset
management is preparing for various scenarios related to debt ceiling
and other concerns.”

* Two regional Federal Reserve Bank presidents Friday cautioned
against any expectation that monetary policymakers will step in to
counter any damaging effects to the economy from the stand-off on
Capitol Hill over raising the debt ceiling. Atlanta Fed President Dennis
Lockhart said he sincerely hopes a U.S. default does not occur, calling
it essential that the debt limit is raised. “Failure to raise the debt
ceiling would have unpredictable consequences for the U.S. economy,” St.
Louis Fed President James Bullard added, although he believes a deal
with get done eventually. Many have speculated that the Fed will be
forced to step in if the debt ceiling is not increased, but Bullard
noted the central bank cannot do anything “directly” to fix the
situation. Lockhart, however, echoed recent comments made by Fed
Chairman Ben Bernanke, warning there should be no expectation the Fed
will intervene. “Don’t look to the Fed to offset the damage that could
be incurred here,” he said.

* Council of Economic Advisers Chairman Austan Goolsbee Friday
said the weak second quarter GDP report underscores the need to end the
uncertainty surrounding the risk of default and put in place a balanced
approach to deficit reduction that phases in budget cuts, instills
confidence, and allows us to live within our means without shortchanging
future growth.

* Sources continued to chatter about the relative strength of
high quality corporate debt, as passage of legislation by Congress to
increase the U.S. debt ceiling remains without resolution. Jody Lurie,
corporate credit analyst at Janney Capital Markets, said, “In light of
recent events related to the U.S. debt ceiling,” as well as the
potential downgrade of the U.S. Triple-A sovereign credit rating, “many
market participants have looked to move into alternative high quality
bonds.”

* In its latest report published Friday, fund flow data provider
EPFR Global said “german equity, gold and emerging market bond funds
take safe haven mantle as investors flee money market funds.” “Money
Market Funds, the refuge of choice during the height of the financial
crisis in 2008-09, are suffering heavy outflows as fears their reliance
on U.S. government paper could compromise their ability to meet
redemptions if America’s debt ceiling is not raised in time,” EPFR said.
It noted that since the second week of June, over $140 billion has been
pulled out of MMFs.

–Editor: Brai Odion-Esene; besene@marketnews.com

** Market News International Washington Bureau: 202-371-2121 **

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