NEW YORK — Financial markets have been relatively calm despite the threat of global financial turmoil.
But nerves in one corner of the market have been rattled as Congress and President Obama move closer to a potential U.S. government default.
Yields on short-term Treasury bonds on Tuesday jumped to levels not seen since late 2008, when the financial world was in turmoil after the investment bank Lehman Bros. collapsed.
The one-month Treasury’s yield shot up to 0.33 percent Tuesday, up from 0.16 percent the previous day. Bond yields move in the opposite direction of price.
“This is probably the clearest indication that there is investor concern out there,” said Jack Ablin, chief investment officer at BMO Private Bank. “It’s the closest payment that’s due.”
Major U.S. stock indexes have slid about 2 percent so far this week as the federal government endures its first shutdown in nearly two decades. The Dow Jones industrial average shed 159.71 points, or 1.1 percent, to 14,776.53 on Tuesday.
“It could be a turbulent ride from now until the middle of the month,” Ablin said.
The last time the U.S. government flirted with default was August 2011. During that episode, in which the country’s credit rating was downgraded, stocks underwent about a 15 percent correction. The Dow lost about 500 or even 600 points on some days.
Not only could an actual default lead to a recession, it would spark an “unprecedented global economic calamity,” Randy Frederick, a managing director at Charles Schwab, wrote in a note this week.
Still, market strategists on Wall Street largely see the Washington stalemate as a sideshow that will be defused just in the nick of time.
“This isn’t a meteor coming from outer space,” Ablin said. “This is a contrived crisis and one that can be resolved.”