Bloomberg -- Pimco's Bill Gross said the U.S. will avoid a catastrophic default on Treasury securities even if lawmakers fail to extend the debt limit on the nations debt.
The U.S. Treasury is the center of the global financial complex, Gross, manager of the worlds biggest bond fund, said during a Bloomberg Television interview with Trish Regan and Adam Johnson. A default would be unimaginable, as it would have catastrophic consequences on U.S. borrowing costs, and would trigger a complex series of events worldwide that would ripple through global financial markets.
The U.S. government began its first partial shutdown in 17 years after Congress failed to break a partisan deadlock by a midnight deadline. Congressional leaders have scheduled no further negotiations on spending legislation, raising concern among some lawmakers that the shutdown may have an impact on the more consequential fight over how to raise the U.S. debt limit to avoid a first-ever default after Oct. 17.
The odds of a default are a million-to-one as the Treasury Department will be able to take other measures to ensure it is servicing the countrys debt, Gross said.
The Treasury is not going to default on their debt simply because the debt ceiling isnt going to be raised, Gross said. There will be other repercussions like slower economic growth. But the Treasury is not going to default.
There will be a slowdown of economic growth of about 0.1% each week the shutdown continues, Gross said.
Treasury Secretary Jacob J. Lew told Congress on Sept. 25 that the extraordinary measures being used to avoid breaching the debtceiling will be exhausted no later than Oct. 17 and that the department will have about $30 billion to pay obligations.
Fitch Ratings, which has a negative outlook on its AAA grade, reiterated in a statement today that its assessment of the countrys credit grade is taking into account the political debate over raising the debt ceiling.
Moodys Investors Service assigns the U.S. a stable Aaa ranking and said last month that it expects the debt ceiling to be raised, averting a default, and for the government to avoid a shutdown.
Standard & Poors cut the U.S. rating to AA+ from AAA in August 2011, a move that reflected the impasse over raising the debt limit as well as the governments lack of a plan to rein in its debt load.
Faith in the U.S.s credit is a key underpinning of the U.S. dollars global reserve currency status and reason why the U.S. AAA rating can tolerate a substantially higher level of public debt than other AAA sovereigns, Fitch said.
While the S&P downgrade didnt result in investors charging the U.S. more to borrow, as 10-year yields slipped to a record 1.38% in July 2012, the move contributed to a global stock-market rout that erased about $6 trillion in value from July 26 to Aug. 12, 2011. Yields on Treasuries due in 10 years have risen to 2.64%.
The $251 billion Total Return Fund managed by Gross has lost 1.89% this year, beating 47% of its peers, according to data compiled by Bloomberg. The fund gained 1.77% in the past month, beating 99% of its peers.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access