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

* Insurance against a default on the U.S. continued to hover at
a 18-1/2 month wide Tuesday as Congress remains divided on legislation
that would raise the debt ceiling and address the federal deficit.
Dealers quoted 5-year CDS insurance on the USA at 57-63 basis points,
some 3 bps wider on the day, after widening by 3 bps on Monday.
Insurance for 5-years on the USA now tests last Monday’s 18-1/2 month
wide of 61 bps.

* For JPMorgan Chase, failure to make interest payments on
Treasuries is too “catastrophic” to happen but for Bank of America
Merrill Lynch the probability of default is not zero, they said on a
SIFMA conference call with reporters Tuesday. If there is no default but
there is a downgrade of the U.S. sovereign rating, the damage will take
longer to make itself felt, economists from both banks agreed during a
SIFMA conference call, and would eventually jack up Treasury rates
perhaps 60 to 70 basis points — “permanently.”

* Credit rating agencies Fitch and Moody’s still expect the U.S.
federal debt ceiling to be raised despite failed negotiations — at
least in appearance — between President Obama and House Speaker John
Boehner Monday. “We believe that the debt ceiling has to be raised, but
the timing is uncertain,” Moody’s lead analyst for the United States
Steven Hess told Market News International Tuesday. “We still believe
that debt obligations will continue to be met on a timely basis,” Hess
added.

* Senate Majority Leader Harry Reid Tuesday said Republican
reaction to his new deficit reduction and debt limit plan raises
far-reaching questions about whether the GOP is even interested in
reaching an agreement on the debt ceiling. Reid said the plan being
pushed by House Speaker John Boehner can’t pass the Senate, adding that
even if it did, it would lead to the downgrading of the U.S.’s debt.

* House Minority Whip Steny Hoyer Tuesday said he’s not sure if
House Speaker John Boehner will be able to round up enough votes in the
House to pass his new debt ceiling plan. At a briefing, Hoyer said he
expects “very few” Democrats to support the new House GOP plan. Hoyer
said he believes the only resolution to the debt hike crisis is the
adoption of a plan like that drafted by Senate Majority Leader Harry
Reid.

* A slight uptick in investment-grade corporate debt supply
landed on the dollar-denominated new bond issuance calendar Tuesday, as
some market sources chattered optimistically about the performance of
corporate debt in the face of a possible U.S. sovereign rating
downgrade. Corporate debt could perform well even if the U.S. fails to
achieve a fiscal plan that satisfies Triple-A sovereign rating criteria
and receives a downgrade from Moody’s, S&P and or Fitch Ratings, sources
said.

* IMF Managing Director Christine Lagarde warned Tuesday that a
failure of the U.S. government to take action quickly to raise the debt
ceiling would have “far reaching” consequences. “Default would be
terrible for the United States and for the economy at large,” she said.
“The consequence would be far reaching.”

* Trading desks Tuesday described swap action as very thin,
skittish, willing and able to turn on a dime. The general consensus is a
U.S. debt default would see spreads contract sharply, as various
accounts rush to liquidate positions. No one knows for sure the net
impact, but many agree current spread levels don’t even remotely price
in chances of default, one desk said.

* Political focus on the United States’ debt crisis is
overshadowing key global issues such as trade and rapidly expanding
emerging market economies that will help the U.S. better integrate
economically and politically, representatives from the House and Senate
said Tuesday. In remarks at Washington-based NDN, a think tank and
advocacy organization, Sen. Chris Coons said during a panel discussion
that “the focus on debt hinders what we could be doing globally,”
adding, “there is a focus on winning over long term benefits.”

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

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

[TOPICS: M$U$$$,MGU$$$,MFU$$$,MCU$$$,M$$CR$]