The markets have been weathering the federal government shutdown without horrific losses, with the S&P 500 index losing just 1.1 percent of its value since October 1. The debt-ceiling showdown, though, may be a different story. We don't have any precedents to look at in this area, but there are some signals that investors are getting very nervous.
Consider the one-month Treasury bill, which is generally about the safest and lowest-yielding investment you can own. For almost the entire year, those bills have been paying less than 0.10 percent in yield, as befits a very short-term instrument. But yesterday, the yield popped up to about 0.34 percent, or three times where it normally sits.
By comparison, the two-year Treasury bill pays 0.38 percent. The investing community is roughly as confident of the U.S. government's ability to pay its bills over the next two years as it is over the next month. Clearly, investors think default is a real possibility.
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