Markets stabilise on US debt deal hopes, downgrade still haunts
01 August 2011 New York
Image: Shutterstock
Shares rallied on Monday after President Obama announced a deal on raising the US debt ceiling, still to be passed by Congress.
Although a technical default now seems unlikely, market participants turn their attention to the possibility of a downgrade.
A downgrade would impact the securities lending market since AAA-rated US Treasuries are commonly used collateral. That might mean institutions scrambling to secure new collateral to uphold contractual obligations.
It could also spell higher financing costs for transactions. Repos are traditionally the simplest and cheapest way for large institutions to finance asset holdings.
Although a technical default now seems unlikely, market participants turn their attention to the possibility of a downgrade.
A downgrade would impact the securities lending market since AAA-rated US Treasuries are commonly used collateral. That might mean institutions scrambling to secure new collateral to uphold contractual obligations.
It could also spell higher financing costs for transactions. Repos are traditionally the simplest and cheapest way for large institutions to finance asset holdings.
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