If the debt ceiling doesn’t get raised quickly after the initial failure to raise it, eventually, the US government might not have enough cash on hand to be able to redeem a bond issue when it matures, and holders of these securities who thought they would get paid face value at the end of June might not get paid anything at the end of June, which would represent a repayment default, which would be very messy. Globally.

Obviously, this isn’t going to happen, knock on wood. The good folks in Congress are surely too worried about their financial wealth, and surely, sheer greed will force them to agree on a deal. But the bet today was that maybe, just maybe, this calculus could be wrong. And it infused a little bit of suspense – as they usually try to do – into the farce so that not everyone will fall asleep, and so that they’ll get a little more political traction with it.

Short End of the Treasury Market Goes Totally Nuts. Doubts Creep in Over Debt Ceiling? | Wolf Street