Investors bet on credit deterioration on Treasury-Fed divide

FILE PHOTO: Steven T. Mnuchin, Secretary, Department of the Treasury during the Senate’s Committee on Banking, Housing, and Urban Affairs hearing examining the quarterly CARES Act report to Congress, in Washington, DC, U.S., September 24, 2020. Toni L. Sandys/Pool via REUTERS

NEW YORK (Reuters) – The price of U.S. corporate debt fell on Friday morning as investors bet that credit conditions could deteriorate if key pandemic lending programs at the Federal Reserve are allowed to expire on Dec. 31.

U.S. Treasury Secretary Steven Mnuchin said on Thursday that some of the Fed’s stimulus programs, which have established the central bank as a lender of last resort to U.S. corporations and municipalities, should be allowed to expire and that the unused funds should be given to Congress to reallocate. That puts Treasury at odds with the Fed, which who said earlier this week the programs should be extended.

Markit’s high-yield credit-default swap index CDXHY5Y=MG fell in price, a bearish signal, to 107.42% in Friday morning trade. The spread of Markit’s investment grade CDX CDXIG5Y=MG widened to its highest since Nov. 4, also a bearish signal, last at 55.61 basis points.

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