Connect with us

News

Janet Yellen warns of jump in US borrowing costs amid debt ceiling stand-off

Published

on

Janet Yellen warns of jump in US borrowing costs amid debt ceiling stand-off

Janet Yellen warned the stand-off over the debt ceiling has resulted in a jump in government borrowing costs, as the Treasury secretary doubled down on predictions the US risks running out of cash as early as June 1.

The Treasury’s borrowing costs have increased “substantially for securities maturing in early June”, Yellen noted in a letter sent to congressional leaders on Monday.

She also reiterated her estimate from earlier this month that the so-called X-date — when the government runs out of money and runs the risk of defaulting — could come in 17 days unless lawmakers lift the borrowing limit.

Yields on short-term Treasury bills that mature next month have risen as the debt ceiling impasse has dragged on, reflecting mounting concerns among investors about the prospects for a default. Investors avoided US government bonds maturing around the X-date, forcing the Treasury to pay higher rates at auctions.

In early May, the four-week Treasury bill auction for debt maturing in the first week of June hit a record-high yield of 5.84 per cent. Treasury bills maturing between June 1 and 13 are trading at far higher yields than those coming due before and after.

Advertisement

In a further sign of jitters, the costs to insure US debt via the credit default swap market has soared to a record high.

Yellen’s latest warning comes on the eve of a meeting at the White House including US President Joe Biden and Republican Speaker of the House Kevin McCarthy.

The pair are expected to gather on Tuesday with Senate minority leader Mitch McConnell, Senate majority leader Chuck Schumer and House minority leader Hakeem Jeffries as the White House, congressional leaders and staffers try to avert a crisis that Yellen has predicted could be “catastrophic” for the global economy.

Meanwhile, Gary Gensler, chair of the Securities and Exchange Commission, said on Monday that a default would be “unimaginable”, likening the possibility to a “raging fire”.

“You’d see breakdowns all through the markets,” he said at a conference hosted by the Atlanta Fed, adding that businesses and homeowners would be hit with higher borrowing costs. “It’d be one heck of a mess.”

Advertisement

Biden and congressional leaders first met to talk about the debt ceiling last week, but a subsequent meeting originally set for last Friday was postponed after staffers said they needed more time to negotiate.

The White House and congressional Democrats have demanded a “clean” bill to raise the debt ceiling without preconditions, while Republicans want to tie a higher borrowing limit to steep spending cuts.

At the weekend, people briefed on the talks said a deal was taking shape that would limit domestic spending for several years. Such a deal could also include a clawing-back of unspent coronavirus pandemic relief funds and a speeding-up of the permitting process for big investment projects, the people said.

Biden on Sunday said he was “optimistic” that a deal could be reached. “It’s never good to characterise a negotiation in the middle of the negotiations. I remain optimistic because I am a congenital optimist,” the president told reporters near his house in Rehoboth Beach, Delaware.

“But I really think there is a desire on their part as well as ours to reach an agreement. And I think we’ll be able to do it.”

Advertisement

McCarthy has been much more downbeat in his public remarks. On Sunday he said the two sides were still “far apart”.

“It just seems like they want to look like they are in a meeting, but they are not talking anything serious. It seems more like they want a default than a deal to me.”

Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

News

Nato countries plan ‘drone wall’ to defend borders with Russia

Published

on

Nato countries plan ‘drone wall’ to defend borders with Russia

Unlock the Editor’s Digest for free

Six Nato countries are planning to develop a “drone wall” to help defend their borders with Russia after a series of provocations, ranging from forced migration to attempts to amend the frontiers.

Ministers from Finland, Norway, Poland and the three Baltic states said at the weekend that they had discussed creating a co-ordinated system of drones along their borders with Russia to prevent smuggling and further provocations, and to help with defence.

“This is a completely new thing — a drone wall stretching from Norway to Poland — and the goal is to use drones and other technologies to protect our borders . . . against provocations from unfriendly countries and to prevent smuggling,” Lithuania’s interior minister Agnė Bilotaitė told the Baltic News Service.

Advertisement

All six countries have faced so-called hybrid attacks — non-military measures that tend to have an element of deniability — from Russia in recent months and years, including undocumented asylum seekers from Africa and the Middle East being sent over their borders.

Mari Rantanen, Finland’s interior minister, told public broadcaster Yle that the drone wall plan would “improve in time” and could help defend the Nordic country’s 1,340km-long border with Russia.

Details of the timing and how the drone wall would work were not provided. Bilotaitė said each country needed to do its “homework” and suggested that EU funds could be used as well.

The frontline Nato states have stepped up warnings about Russia’s intentions after Moscow’s full-scale invasion of Ukraine in February 2022 and its subsequent moving of its economy to a war footing.

Russia’s defence ministry published a draft proposal last week on its website on unilaterally expanding its maritime borders with Lithuania and Finland, before deleting the plan.

Advertisement

A day later, Russian border guards removed 25 buoys from Estonian waters that were marking the border, sparking outrage and messages of support for Tallinn from Nato and a number of its member states.

Many Nato countries believe Russia could test Nato’s border within the next five to 10 years, while intelligence services have uncovered a number of assumed sabotage operations on their soil.

Russia’s war against Ukraine has highlighted the importance of drones, with both sides using them in attacks. Several Nato countries have responded by setting up or intensifying their drone warfare units.

The six Nato countries also discussed plans at the meeting for evacuating large parts of their population in the event of a conflict. Finnish officials, for instance, have expressed surprise that Ukraine has kept its civilian population in or close to the frontlines, saying that the defence plans of the Nordic country involve evacuating border populations.

Advertisement
Continue Reading

News

Tornado damages homes as Texas and Oklahoma residents told to seek shelter

Published

on

Tornado damages homes as Texas and Oklahoma residents told to seek shelter

Severe storm clouds move across the northwest edge of Davenport, Iowa on Friday, May 24, 2024. Several tornadoes were reported in Iowa and Illinois as storms downed power lines and trees on Friday, just after a deadly twister devastated one small town.

Roy Dabner/AP/Quad City Times


hide caption

toggle caption

Advertisement

Roy Dabner/AP/Quad City Times

OKLAHOMA CITY — A tornado touched down and crossed an interstate in Texas, causing damage and possible injuries as scattered severe storms moved through Texas and Oklahoma Saturday night.

Forecasters issued tornado and severe thunder storm warnings for parts of both states, as some heat records were broken during the day in South Texas and residents received triple-digit temperature warnings over the long holiday weekend.

A tornado crossed into northern Denton County in Texas late Saturday and overturned tractor-trailer trucks, stopping traffic on Interstate 35, Denton County Community Relations Director Dawn Cobb said in a statement.

Advertisement

The tornado was confirmed near Valley View, moving east at 40 mph (64 kph), prompting the National Weather Service to issue a tornado warning for northern Denton County, Cobb said.

The storm damaged homes, overturned motorhomes and knocked down power lines and trees throughout the area including points in Sanger, Pilot Point, Ray Roberts Lake and Isle du Bois State Park, Cobb said, adding that the number of injuries in the county was not immediately known.

The fire department in the city of Denton, about 37 miles (59.5 kilometers) north of Forth Worth, Texas, posted on X that emergency personnel were responding to a marina “for multiple victims, some reported trapped.”

The Claremore, Oklahoma, police announced on social media that the city about 28 miles (45 kilometers) east of Tulsa was “shut down” as a result of storm damage including downed power lines and trees and inaccessible roads.

Earlier Saturday night, the National Weather Service’s office in Norman, Oklahoma, said via the social platform X that the warning was for northern Noble and far southern Kay counties, an area located to the north of Oklahoma City. “If you are in the path of this storm take cover now!” it said.

Advertisement

A following post at 10:05 p.m. said storms had exited the area but warned of a storm moving across north Texas that could affect portions of south central Oklahoma.

At 10:24 p.m., the weather service office in Fort Worth posted a message warning residents in Era and Valley View they were in the direct path of a possible tornado and to immediately seek shelter. The Forth Worth office continued to post notices and shelter warnings tracking the movement of the storm through midnight and separately issued a severe thunderstorm warning with “golf ball sized hail” possible.

The weather service office in Tulsa, Oklahoma, warned on X of a dangerous storm moving across the northeast part of the state through 2 a.m. and issued severe thunderstorm notices for communities including Hugo, Boswell, Fort Towson, Grainola, Foraker and Herd.

The Norman office had compared conditions Saturday to “ a gasoline-soaked brush pile.” Forecasters said any storms that form could explode with large hail, dangerous winds and tornadoes.

“There’s a small chance most of the matches are duds and we only see a few storms today. Still, that’s not a match I would want to play with. It only takes one storm to be impactful,” it said via Facebook.

Advertisement

Excessive heat, especially for May, was the danger in South Texas, where the heat index was forecast to approach 120 degrees Fahrenheit (49 degrees Celsius) in some spots during the weekend. Actual temperatures will be lower, although still in triple-digit territory, but the humidity will make it feel that much hotter.

The region is on the north end of a heat dome stretching from Mexico to South America, National Weather Service meteorologist Zack Taylor said.

Sunday looks like the hottest day with record highs for late May forecast for Austin, Brownsville, Dallas and San Antonio, Taylor said.

Brownsville and Harlingen near the Texas-Mexico border already set new records Saturday for the May 25 calendar date — 99 degrees Fahrenheit (37 degrees Celsius) and 100 degrees Fahrenheit (38 degrees Celsius), respectively — according to the weather service.

Red Flag fire warnings were also in place in West Texas, all of New Mexico and parts of Oklahoma, Arizona and Colorado. Humidity was very low, under 10%, and wind gusts of up to 60 mph (97 kph) were recorded.

Advertisement

“We’ve got very dry air, warm temperatures and strong winds creating a high fire danger over a wide area … that can lead to rapidly spreading or uncontrollable fires,” Taylor said.

Meanwhile, several inches of snow fell Friday into early Saturday in Rolla, North Dakota, about 10 miles (16 kilometers) from the Canadian border.

April and May have been a busy month for tornadoes, especially in the Midwest. Climate change is heightening the severity of storms around the world.

April saw the United States’ second-highest number of tornadoes on record. So far for 2024, the country is already 25% ahead of the average number of twisters, according to the Storm Prediction Center in Norman.

Iowa was hit hard this week, when a deadly twister devastated Greenfield. And other storms brought flooding and wind damage elsewhere in the state.

Advertisement

The storm system causing the severe weather was expected to move east as the Memorial Day weekend continues, bringing rain that could delay the Indianapolis 500 auto race Sunday in Indiana and more severe storms in Illinois, Indiana, Missouri and Kentucky.

The risk of severe weather moves into North Carolina and Virginia on Monday, forecasters said.

Continue Reading

News

Tesla investors advised to vote against Elon Musk’s $56bn pay and Texas move

Published

on

Tesla investors advised to vote against Elon Musk’s $56bn pay and Texas move

Unlock the Editor’s Digest for free

Proxy adviser Glass Lewis has urged Tesla shareholders to vote against Elon Musk’s $56bn pay award and a proposal to reincorporate the electric vehicle maker in Texas, a major blow for the board ahead of its crucial annual meeting next month.

Glass Lewis said the chief executive’s package of share options was unduly dilutive and of “excessive size” in a report released on Saturday. It also criticised the proposed move to Texas as offering “uncertain benefits and additional risk” to shareholders.

The proxy adviser also raised issues with Musk’s “slate of extraordinarily time-consuming projects”, in particular the 2022 acquisition and ongoing overhaul of Twitter, now known as X, which it claims are distracting the billionaire from leading the world’s largest EV manufacturer. Musk also runs SpaceX, Neuralink and the Boring Company.

Advertisement

Tesla’s board has been lobbying investors to re-ratify the $56bn award given in 2018, which was struck down by a Delaware judge in January due to concerns over its size and the independence of the board. In response, Musk vowed to leave the state and move Tesla’s incorporation to Texas.

Tesla chair Robyn Denholm has argued that Musk deserves to be paid so much because the company hit ambitious targets for revenue and its stock price. She brushed off criticism she is too close to the CEO as “crap”.

Glass Lewis’s recommendations are significant because they influence the voting of large institutional investors such as Vanguard, Capital Group, Norges and State Street, all of whom are top-10 shareholders in Tesla and voted against the pay proposal the first time around. Nevertheless, the proposal passed with 73 per cent approval.

Fellow proxy adviser ISS is expected to release its own report soon ahead of Tesla’s June 13 annual meeting.

While winning the pay vote would not overturn the court’s decision, the carmaker hopes it will prove investors still back the package six years later and could be decisive in subsequent legal appeals.

Advertisement

If successful, Musk’s stake will jump to more than 20 per cent from 13 per cent. A loss would be symbolically damaging for Denholm and the rest of the board and raise questions about Musk’s future at Tesla. He has threatened to develop future artificial intelligence products elsewhere if he does not gain greater control of the automaker, which he is repositioning as an AI and robotics company.

Some large investors have indicated they are prepared to back the award regardless of proxy advice. Baillie Gifford’s flagship Scottish Mortgage Investment Trust told the FT this week that it was in favour because Musk had delivered “remarkable corporate performance leading to huge creation of value for shareholders”.

Tesla also has to persuade thousands of retail investors around the world to vote in favour of the resolutions. They account for about 30 per cent of shares, an unusually high amount for a listed company, and will be crucial in the outcome.

On the pay vote, a simple majority must be in favour, excluding those shares owned by Musk and his brother Kimbal. Reincorporation in Texas has a higher bar, requiring a majority of all shares outstanding, meaning those not cast are counted as a “no”.

Glass Lewis also recommended voting against the re-election of Kimbal to the eight-person board, warning “shareholders may reasonably consider the board’s overall independence to be a material concern.”

Advertisement
Continue Reading

Trending