March 19, 2019

European Shares Rise in Sparse Trading

LONDON — European stocks, bonds and the dollar traded more calmly on Monday after last week’s turbulence, though a 3 percent dive in Japan’s main share index kept investors on edge.

Holidays in the United States and Britain kept European equity and bond markets quieter than usual, but with last week’s declines tempting buyers, the Euro Stoxx 50 rose 1.1 percent, and Italian and Spanish bonds managed their first gains in three sessions.

The dollar was also steadier, though it slid back to 101 against the yen as the latest lurch in Japanese equities encouraged investors who have been unwinding their dollar hedges on share portfolios and heading for bonds.

The 3.2 percent drop on Tokyo’s Nikkei 225 index brought its losses since Wednesday to nearly 10 percent, though the index is still up 36 percent this year.

Last week’s shakeout of equity, bond and currency markets was set off by concerns that the Federal Reserve could wind down its monetary support sooner than had been expected. In addition, there was weak Chinese data, and doubts over how low Japan would allow the yen to go.

But despite the wobble, analysts largely foresee a period of moderation in risk assets, rather than a big correction.

Dan Morris, a global strategist at J.P. Morgan Asset Management, said that a pullback by the Fed would be turbulent, but added, “With fundamental drivers for equities still supportive, investors should tighten their seat belts instead of reaching for the parachute.”

Whereas the Fed appears to be weighing an exit from its crisis measures, the European Central Bank may still have some scope to counter a long-running euro zone recession caused largely by efforts to contain the bloc’s sovereign debt crisis.

On Wednesday, the European Commission will release its review of countries’ debt-cutting policies, which will confirm that France, Spain, Slovenia and others may be given more time to trim their budget deficits. The Organization for Economic Cooperation and Development will publish a review of major economies on the same day.

Three Italian government bond auctions this week will also test demand after the talk of Fed stimulus withdrawal.

Italian and Spanish bonds were caught in the sell-off in risk assets last week, but yields on both have eased back as focus turns to the European Central Bank’s next step.

Jörg Asmussen, who sits on the central bank’s executive board, said that the bank would remain accommodative “as long as needed,” although he sounded cautious about charging banks to put money on deposit at the central bank, something that could help hold down borrowing costs.

“One should be very cautious regarding the discussion if the E.C.B. could introduce negative deposit rates,” Mr. Asmussen said in a speech in Berlin. “This can have advantages, but it can also have disadvantages.”

The mood was again tentative in the commodities markets. Brent crude slipped to $102.62 a barrel, extending last week’s 2 percent drop, as the patchy economic outlook in a well-supplied market pressured prices.

Anxiety in the broader market also helped gold, considered a safe-haven investment, firm up at $1,394.39 an ounce as it built on last week’s best run in a month. Copper, a metal more attuned to growth, fell 0.2 percent.

After disappointing data from China last week dimmed the outlook for global oil demand, the oil producer cartel OPEC was expected to keep policy unchanged at a meeting on Friday.

The shale revolution in the United States, still the biggest oil consumer, may even bring an end to the relentless rise in fuel prices seen over the past decade.

“OPEC is in a hard situation,” said Chakib Khelil, who was Algeria’s oil minister from 1999 to 2010. “The demand for OPEC oil is going down, while increasing demand is being met by others.”

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Debt Ceiling Optimism Lifts Markets Overseas

LONDON (AP) — Hopes that United States politicians will be able to reach a deal on raising the government’s debt ceiling, avoiding the risk of a disastrous default, supported global markets on Monday, with Wall Street closed for a holiday.

Congress must agree by the end of February to increase the limit on how much the nation can borrow so the government can service its debt. If it doesn’t, the country could default, which would deal a heavy blow to global financial markets and undermine confidence in the world’s largest economy.

Republicans appear ready to raise the debt ceiling temporarily and have also backed away from their insistence on deep spending concessions in exchange for a deal. The signs of compromise last week encouraged investors to buy into stock indexes, many of which are near multiyear highs.

“Although this again could be seen as another round of political battle, any progress to avoid immediate dangers will likely be seen as positive by the market,” Gary Yau, analyst at Crédit Agricole, said in a report to investors.

The FTSE 100 in Britain closed Monday up 0.43 percent, at 6,180.98, the DAX in Germany advanced 0.36 percent, to 7,729.80. The CAC-40 in France ended the day up 0.2 percent, at 3,749.79.

United States stock and bond markets were closed on Monday for Martin Luther King’s Birthday.

Dickie Wong, executive director of research at Kingston Securities in Hong Kong, said he was optimistic that an agreement on the debt ceiling would be reached because of the high price tag attached to failing to do so.

“Both parties will find some kind of solution because they all know that the debt ceiling will have to be increased,” Mr. Wong said. “At the very last minute, they will sort it out.”

Earlier in Asia, markets were more cautious, with Japanese shares hit hard by a rise in the yen. The Nikkei 225 fell 1.5 percent, to close at 10,747.74.

The Bank of Japan began a two-day policy meeting and has been under pressure from a new government to take more aggressive steps to fight the long deflationary slump there. Some analysts expect the bank to expand its asset-purchasing program and set an inflation target.

In commodity markets, the benchmark oil contract for February delivery was down 50 cents to $95.06 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 7 cents to finish at $95.56 a barrel on the Nymex on Friday.

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Mutual Funds Found Big 2012 Gains, Despite Political Worry

The Standard Poor’s 500-stock index rose 13.4 percent for the year, even with a 1 percent decline in the fourth quarter. In those last months, doubts rose about whether Congress and President Obama could reach an agreement on taxes and spending in time to avoid the so-called fiscal cliff — and the recession that was thought to lie below.

The drama in Washington was one of several throughout the year that kept investors focused more on capitols than corporate boardrooms. European leaders were continually devising plans to rescue the euro and some of the economies that use it, and China underwent a change of leadership.

Although the fourth-quarter loss was worse soon after Election Day and stocks raced ahead at the start of the new year, investors’ concerns may yet prove well founded. The immediate concerns related to taxes were resolved only at the 11th hour — just past midnight, really — and much remains to be sorted out on spending. Investment advisers said that politics, at home and abroad, would continue to guide markets.

“The political environment and uncertainty revolving around policy decisions has been a really big factor,” said Jeremy DeGroot, chief investment officer of the fund provider Litman Gregory. “There are significant deficit issues that developed economies are facing, and the markets are hanging on every development.”

One bit of uncertainty was eliminated on Jan. 1, when Congress agreed to limit the scope of scheduled tax increases, although the deal still resulted in higher tax rates on payrolls, dividends and capital gains.

Worries also abated when European Union finance ministers agreed in the fourth quarter to place big banks under the supervision of the European Central Bank. That followed the bank’s announcement that it would support the bond markets of weaker economies, which are concentrated along the region’s southern periphery.

THE moves on both sides of the Atlantic helped stock funds achieve modest fourth-quarter gains. The average domestic fund in Morningstar’s database rose 0.9 percent. International funds fared better, up 4.8 percent, on average, with portfolios that focus on European stocks returning 7.4 percent and emerging-market funds rising 6.2 percent. Full-year returns exceeded 14 percent for all four categories.

Yields on short- and long-term debt remained low all year as the Federal Reserve and other central banks maintained the easy monetary policies in force since the 2008 crisis. While that could account for much of stocks’ strength during 2012, the influence on bond returns, at least on high-quality government issues, may be waning.

The average bond fund rose a healthy 8.4 percent on the year, but the fourth-quarter gain was a slim 1.3 percent, dragged lower by a 1.1 percent loss for portfolios of long-term government bonds. High-yield bond funds rose 3.1 percent for the quarter, on average, and funds that specialize in debt issued in emerging economies gained 3.9 percent.

Just how helpful low interest rates were for economic growth is hard to discern. American economic output has continued to expand at a sluggish pace. And Europe is widely seen to be in recession.

“The trend of deterioration in Europe is not slowing down,” said Virginie Maisonneuve, head of global and international equities at Schroder Investment Management. She noted, though, that some indicators suggested that conditions were stabilizing at very low levels along the continent’s troubled southern fringe.

Whatever the economic impact of low interest rates, they seem to be helping corporate America. Corporate debt issuance last year exceeded $1 trillion for the first time.

Increased indebtedness provides leverage that lifts profit margins, said Jeremy Grantham, chief investment strategist of the fund management company GMO. Margins have reached record levels as a proportion of economic output and are “weirdly high,” in his opinion, “unless we’re in one of those wonderful secular shifts that people talk about but almost never see.” He doesn’t glimpse any such new normal, however, and cites high margins as a reason to be cautious about most stocks.

Rising debt of another kind is a pressing concern for many investors. With the national debt above $16 trillion, the second part of the fiscal cliff debate, focusing on spending cuts, is expected to be played out over the next month or so in Washington.

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I.H.T. Special Report: Global Agenda: To Limit Turmoil, Focus Turns to Fighting Joblessness

That is why, when policy makers and economists meet in Washington this week for the annual meetings of the International Monetary Fund and World Bank, unemployment will be prominent on the agenda.

After all, the ultimate measure of economic success is not whether the stock or bond markets go up — though it sometimes seems that way — but rather whether a society can provide jobs for its citizens. A society that fails will see other problems multiply in the form of political unrest, sinking tax revenue and soaring debt.

Greece, which is threatening to undermine the global financial system, is a prime example. An underlying cause of its debt problem is the country’s dysfunctional economy and an ossified job market that keeps out newcomers and outsiders.

“The Greek labor market clearly plays a huge role,” said Jacob Funk Kierkegaard, an economist at the Peterson Institute for International Economics in Washington. “Greece is totally overregulated and systemically corrupt. Everybody is a protected group. You clearly need to get rid of that.”

Likewise, it is no accident that the countries in the Middle East and North Africa where political unrest has flared have some of the highest rates of youth unemployment in the world, with young people nearly four times as likely to be jobless as adults, according to the International Labor Organization in Geneva. An unusually high number of the unemployed are well educated.

The long-term success of uprisings that toppled strongmen in Egypt, Tunisia and Libya will probably depend in large part on whether the new governments can provide jobs for the frustrated young people who propelled regime change.

For that reason, the European Bank for Reconstruction and Development, which is financed by 61 countries, including the United States, has put a priority on creating jobs as it expands its involvement to North Africa after the Arab Spring.

“The No. 1 focus is going to be on small and medium-size enterprises and employment, creating new jobs and meaningful jobs,” said Erik Berglof, chief economist of the European Bank.

But it is the industrialized countries, not the poor nations, that have the biggest growth in unemployment. Developed countries account for 15 percent of the world’s labor force but more than half the number of newly jobless since 2007, according to the International Labor Organization.

Unemployment, said Prakash Loungani, an adviser in the research department of the I.M.F. in Washington, “is an advanced-country problem.”

This does not mean that workers in the United States or Europe are going to start migrating to emerging markets for jobs. Working people in emerging countries are often extremely poor. Nearly 40 percent, or 1.2 billion people, earn less than $2 a day.

It is the prospect of a better job that drives huge numbers of poor people to risk their lives in treks to Europe or the United States, where the influx of immigrants can raise political tensions.

While the number of people migrating in search of work has declined during the global downturn, developed countries “remain attractive,” said Thomas Liebig, who studies migration at the Organization for Economic Cooperation and Development in Paris. “The gap is still pretty large.”

High growth rates mean that employment in emerging countries is at least going in the right direction. That is not true of many developed economies. Just ask President Obama, whose re-election may depend on whether the United States unemployment rate starts to go down.

Few large countries have had better success than Germany. Unemployment has plunged to 6.2 percent from a peak of 10.6 percent in 2005. One reason is a series of policies that loosened job protections and put more pressure on unemployed people to find work.

Niki Kitsantonis contributed reporting from Athens.

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Stocks and Bonds: Stocks Plunge After Fed Meeting

Stocks steeply declined soon after the Fed announced Wednesday afternoon that it would sell short-term government debt and purchase $400 billion in long-term Treasury securities.

Though the decision helped the bond markets, analysts said the sell-off in stocks showed that investors were unsure that the decision would fully address the economic slowdown.

The announcement was largely in line with the thinking of investors who had been pricing in their expectations that the central bank would shuffle around the composition of its portfolio in a way that would allow businesses and consumers to borrow more cheaply.

Some investors may have been disappointed because there was not some measure that would have significantly contributed to the rise in equity prices, as the previous quantitative easing program did, said David Joy, chief market strategist with Ameriprise Financial.

He described the new measure as a “net wash,” because there was no expansion of the balance sheet.

Investors sold short-term bonds and bought longer-term ones, because they were “trying to buy up something that is going to be in demand, getting in front of the Fed, in essence,” Mr. Joy said.

The Dow Jones industrial average ended down 283.82 points, or 2.5 percent, at 11,124.84, and the Standard Poor’s 500-stock index was down 2.9 percent, or 35.33 points, at 1,166.76. The Nasdaq composite index fell 2 percent, or 52.05 points, to 2,538.19.

The 10-year bond yield fell to 1.86 percent, a new low. That compared with a yield of 1.94 percent late Tuesday. The price on the benchmark note rose 24/32 to 102 14/32.

Another analyst suggested that there were perceptions that the Fed’s move could not get to the root of the problem.

Clark Yingst, the chief market analyst for the investment firm Joseph Gunnar, noted that the declines on Wednesday were in fact preceded by losses in cyclical stocks in previous sessions, like those sensitive to whether the economy was growing or not. Those included stocks in the materials, and industrial sectors related to coal and copper production. The two sectors finished more than 4 percent lower.

Tightening monetary policy in Europe, which is struggling with a sovereign debt crisis, would not help, because it might affect exports.

“This is happening in my view because we are in the midst not only of a U.S. slowdown but a global slowdown,” Mr. Yingst said.

Mr. Yingst said that there could also be some questions about whether the cost of credit was really at the heart of the issue, and that the lower interest rates could take away the incentive for banks to lend, and further squeeze their net interest margins.

“It could backfire,” he said.

 But Lee Quaintance and Paul Brodsky, analysts at QB Asset Management Company, said they thought the move could help banks, in part by improving balance sheets. 

“We think this twist is just the latest permutation of bank aid,” they said in a statement. “Frankly, we cannot remember the Fed doing anything that threatened bank profitability.”

Still, bank stocks as a group fell nearly 5 percent on Wednesday. In addition, Moody’s Investors Service cut its credit ratings on Bank of America, Citigroup and Wells Fargo, saying that Washington was now less likely to bail out the banks if needed. Bank of America fell 7.5 percent to $6.38. Citigroup was down 5.24 percent at $25.52. Wells Fargo was 3.89 percent lower at $23.71. JPMorgan Chase was down 5.92 percent at $30.34.

“Moody’s certainly did not help,” Mr. Yingst added.

Still, some analysts said that the decision was more “aggressive” than the market expected. Anthony Valeri, investment strategist for fixed income with LPL Financial, said that was particularly true with regard to the dollar amount and maturity focus of the Fed’s buying program. “They erred to the aggressive side, I think, because they feel they are the only game in town,” he said.

Binyamin Appelbaum contributed reporting.

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After Hurricane Irene, Markets Plan Business as Usual

The nation’s stock exchanges, after consulting with the Securities and Exchange Commission, said Sunday that they planned to open as usual on Monday morning. Wall Street banks said they, too, would be open for business as usual, and the Securities Industry and Financial Markets Association said bond markets were on schedule as well.

The New York Stock Exchange, in a statement, said the decision to open on schedule followed a detailed review with New York City officials “of the operational readiness of metro area safety, power, water and transportation systems, in addition to a readiness assessment of our own trading and data center facilities.”

With negligible physical damage from Hurricane Irene, the question for Wall Street was whether mass transit would be able to get people onto the trading floors in Manhattan.

But even without subways and buses, the New York Stock Exchange and the companies that employ the traders on the floor of the exchange have contingency plans to help them function with minimal staff. Many of their employees live in Manhattan or expect to drive into the city, while others were put up in hotels over the weekend.

The New York Federal Reserve also was unaffected by the storm and was expecting employees to make transportation arrangements or to work remotely Monday if mass transit was still disrupted.

Exchanges like the N.Y.S.E. and Nasdaq, BATS Trading and Direct Edge, the nation’s big electronic exchanges, have their computer centers based in New Jersey, where they also have robust backup centers that survived the storm.

Nasdaq said it had moved some staff members to alternative sites ahead of the storm but was now ready to open its market as usual Monday. Rather than force employees to commute into Manhattan, however, it would start by operating its exchange from one of its parallel centers in an undisclosed location.

The New York Stock Exchange was last closed for a weather-related reason in 1996 because of a snow storm. It was also closed for a day in 1985 during Hurricane Gloria.

Before the weekend, Wall Street’s banks were putting in place contingency plans, talking to regulators and asking employees to check systems they could use for trading from home. Many have offices around the country and said they were prepared to switch more of their operations there if necessary.

Many of New York’s largest investment banks have their headquarters in Midtown Manhattan and thus fell outside the city’s designated evacuation zones. They were planning on opening for business as normal on Monday, although some were still looking at ways to transport staff into New York if mass transit was not functioning.

The banks reported no damage to their facilities, including Goldman Sachs, whose Battery Park City headquarters was included in Mayor Bloomberg’s evacuation order. A Goldman spokesman added that “people who need to work from home will be able to.”

After closing some of its operations over the weekend, American Express, based in the World Financial Center, said its office would be closed Monday and was asking people to work from home.

Credit Suisse said it was ready to open on Monday because of its contingency planning, including “the provision of accommodations and transportation for essential New York staff.” Citigroup also said it was looking at alternative transportation to help staff.

A spokesman from Deutsche Bank said that the bank would decide later Sunday whether employees would work from its 60 Wall Street headquarters or an alternate facility, depending on the state of mass transit.

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Asian Markets Fall Despite Efforts by Policy Makers

HONG KONG — Asian stock markets continued to slide Monday morning, and gold continued its ascent, despite efforts by policy makers around the world to restore battered financial-market confidence over the weekend.

The falls were not as dramatic as they had been at the end of last week, when Asia-Pacific markets had sagged sharply. The Nikkei 225 index in Japan and the Kospi in South Korea both slipped 1.3 percent by mid-morning, the Australian market fell 0.8 percent.

The Straits Times in Singapore fell 2.3 percent, and in Taiwan, the Taiex declined 1.1 percent.

Futures on the Standard Poor’s 500 were 1.8 percent lower, further underscoring the worries of investors as they tried to assess the implications of the decision by Standard Poor’s late Friday to lower its credit rating of the United States.

Gold, considered a haven in times of uncertainty, rose to yet another nominal record high, vaulting $1,690 per ounce.

Worries over the financial health of Italy and Spain also continued to mount, prompting the European Central Bank on Sunday to signal that would intervene more aggressively in bond markets to prevent borrowing costs for Spain and Italy from rising to unsustainable levels.

The Group of 7 industrialized nations followed suit, issuing a statement early Monday that it was ready to “take all necessary measures to support financial stability and growth.”

Many analysts stressed that Standard Poor’s downgrade of the United States’ rating had been well telegraphed, and was unlikely to sharply raise U.S. borrowing costs.

“The downgrade to U.S. debt is unlikely to have any material impact on the U.S. economy or on Asian economies,” analysts at UBS wrote in a note on Monday.

“It’s important to note that there is no regulatory requirement for U.S. investment institutions to sell long-term U.S. Treasuries if they are not rated AAA, ditto for short-term treasuries, and Asian central banks will continue to buy U.S .Treasuries as a corollary to exchange rate intervention to protect exporters. (They don’t have much choice.)”

Blackrock echoed this in a statement on Monday: “The downgrade of U.S. sovereign credit by S.P. on Friday reflects facts that have been well known to the market for some time. So, it does not imply a fundamental increase in risk, and we don’t believe that investors should change their behavior based solely on the downgrade.”

Still, the worries extend beyond the issue of the credit rating to the wider U.S. economic recovery, which appears to be floundering. Jobs data released Friday showed a slightly better picture than expected, and helped support Wall Street Friday. But a flurry of other data have painted a bleak picture in recent weeks.

“What really matters is the fact that the U.S. is struggling to sustain growth, U.S. monetary policy is likely to remain on hold for longer than previously thought, and Europe will remain problematic for the time being,” the UBS analysts wrote.

For Asia, which, with the exception of Japan, is less indebted than many Western nations, and generally enjoys solid growth and domestic demand, the outlook remains comparatively positive.

S.P. said in yet another statement on Monday that “in and of itself, there is no immediate impact on Asia-Pacific sovereign ratings” from its downgrade of the United States.

Further down the line, however, “the U.S. rating change, together with the weakening sovereign creditworthiness in Europe, does point to an increasingly uncertain and challenging environment ahead.”

The growing market and economic uncertainties, it added “are negative factors for Asia-Pacific sovereign ratings. “

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DealBook: Debt Ceiling Impasse Rattles Short-Term Credit Markets

The Treasury building in Washington.Andrew Harrer/Bloomberg NewsThe Treasury building in Washington.

The reverberations of Washington’s impasse over a debt deal are already being felt in the short-term credit markets, a key artery of the economy that daily supplies trillions of dollars of credit.

Over the last week, big banks and companies have withdrawn $37.5 billion from money market funds that invest in Treasury debt and other ultra-safe securities, the biggest weekly drop this year. Meanwhile, in the vast market for repurchase agreements, in which many financial firms make short-term loans to one another, borrowers are beginning to demand higher yields.

These moves underscore how companies and big financial institutions are beginning to rethink their traditional view that notes issued by the United States Treasury are indistinguishable from cash, even though many experts say they think it is unlikely that the government would miss payments on its obligations.

The $37.5 billion drop, reported Thursday in a weekly survey by the Investment Company Institute, echoed what other analysts were seeing.

In the first three days of this week, investors pulled $17 billion from funds that invested only in government securities, a reversal of the daily inflows of $280 million for much of July, said Peter Crane, the president of Crane Data, which tracks money market mutual funds.

“It’s big, no doubt about it,” he said. “Seventeen billion isn’t a run, but it’s definitely indicative that investors are shifting their assets. If this were to continue for another week or two, it would be very disturbing.”

Though lawmakers have been clashing all week on proposals to cut the deficit and raise the debt limit ahead of an Aug. 2 deadline set by the Treasury Department, bond markets have largely shrugged off the risk of a default or a downgrade of the Washington’s AAA credit rating.

Interest rates on longer-term Treasuries have held steady, but the yield on notes coming due next week, after the deadline, has moved sharply higher in recent days. The yield on Treasury bills coming due Aug. 4 jumped five basis points to 15 basis points, a significant move for a security that carried a yield close to zero earlier this month, said Jim Caron, head of interest rate strategy at Morgan Stanley.

“It’s a tell-tale sign of something that could reverberate if it spreads to other markets, and all the uncertainty with the debt ceiling is the functional equivalent of a tightening,” Mr. Caron said. “I don’t think there is a default risk at all but the market is saying it’s not going to take any chances.”

While money market fund managers say they are not seeing a sizable wave of redemptions yet, they are setting aside more cash, leaving it at custodial bank accounts in case investors demand their money back. At Fidelity, the Boston-based firm that has $442 billion in money market assets, managers are avoiding Treasury bills that come due on Aug. 4 and Aug. 11, however unlikely a technical default may be.

“We are positioning our portfolio to respond to a downgrade or a default and we are positioning the fund to respond to redemptions,” said Robert Brown, president of money markets at Fidelity. Mr. Brown would not say how much cash was being kept at hand, but said “it’s a higher balance than one would expect to see.”

In the commercial paper market, where companies raise funds for their short-term borrowing needs, buyers are also seeking shorter-term paper.

In the last week, investors have shown signs of wanting quick access to their money, with financial borrowers raising on Wednesday only $1 million in notes that come due in 81 days or more, according to the Federal Reserve. That is down from $479 million on July 22.

At the same time, the amount of commercial paper issued with a duration of just one to four days rose to $920 million, from $771 million.

“Investors are scrambling to bolster their liquidity profile,” said Chris Conetta, head of global commercial paper trading at Barclays Capital. “They understand that a default or downgrade could be a big, systemic event.”

In the repurchase market, known as the repo market, borrowers take loans and in exchange hand over a little more than the equivalent loan amount in securities. Because of their risk-free status, Treasuries are highly favored as collateral, estimated to account for about $4 trillion in the repo markets.

The fear is that if the United States credit rating drops, the value of those treasuries could respond in kind. Borrowers would then have to post more collateral to obtain their loans, effectively raising the cost of borrowing. That could ripple into the broader market, raising interest rates on all types of loans, analysts warn.

“The repo market is a pressure point because it can have an impact on overall credit availability, which bleeds through to mortgage rates,” said Robert Toomey, managing director at the Securities Industry and Financial Markets Association. “Treasuries become a little less attractive if they are more expensive to finance.”

The overnight repo rate, which started the week at about three basis points, was about 17 basis points Thursday evening, according to Credit Suisse. That means that to finance $100 million overnight in the repo market it would now cost about $472 per day, up from about $83 on Monday.

“It’s a bigger deal than a lot of people recognize,” said Howard Simons, a strategist at Bianco Research, a bond market specialist. “If you downgrade the securities you have to put more up for collateral and that affects pretty much everybody out there who has held these in reserve. I don’t care if you’re a bank, insurance company, exchange or clearinghouse.”

To be sure, most observers say the ripples in the repo market will not be anything like those felt in the fall of 2008, when creditors lost faith in the ability of banks to pay back their short-term loans. That caused a problem for companies like General Electric, which struggled to finance its daily operations as a result. Back then, the sharp drop-off in repo lending helped bring the financial system to its knees.

“I think people are looking at the U.S. as the cleanest shirt in the dirty laundry pile,” said Jason New, a senior managing director at GSO Capital Partners.

“To me, the downgrade is not dropping a boulder in a still lake. This is dropping a pebble, but nevertheless there are still ripples.”

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