Connect with us

Hi, what are you looking for?


US debt default may rattle markets

By Keisha B. Ta-asan and Luisa Maria Jacinta C. Jocson, Reporters

THE PHILIPPINE ECONOMY and markets are unlikely to be spared from the massive fallout from a possible debt default by the United States, analysts said.

On Tuesday, debt ceiling talks between representatives of President Joseph R. Biden, Jr. and congressional Republicans ended with no signs of progress as the deadline to raise the government’s $31.4-trillion borrowing limit or risk default ticked closer.

“An extreme scenario of a protracted US default could lead to some downward pressure on most emerging market assets and Philippine markets aren’t likely to be spared,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a Viber message.

The US Treasury department has already warned it will be unable to pay the government’s bills beyond June 1 without an increase in the debt limit. This is expected to trigger the first-ever US default, which may push the economy into a recession and plunge global markets into chaos.

“A debt default would be a dire event, with an unpredictable but massive fallout on the global economy and the financial markets. No one is prepared for this,” Papa Securities, Inc. Equities Strategist Manny P. Cruz said in a Viber message.

Diversified Securities, Inc. Equity Trader Aniceto K. Pangan said a default by the world’s largest economy will likely trigger a global financial crisis similar to what happened in 2007.

“With this, global recession will again be ignited. Definitely, the Philippines will be among the affected as it relies heavily on remittances plus its BPO (business process outsourcing), which contributes a lot to our economy,” Mr. Pangan said.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco likewise said that the default would have a big impact on the Philippine economy.

“[The Philippines] relies heavily on US demand for both its merchandise and services exports, while a pinch to the US labor market could indirectly affect remittances from the millions of Filipinos living in America,” Mr. Chanco said.

The United States was one of the top destinations of Philippine-made goods in March with $877.89 million, accounting for 13.4% of the total exports during the month.

Cash remittances by overseas Filipinos jumped by 3% year on year to $2.67 billion in March. The US accounted for 41.4% of total remittances to the Philippines in March.

Analysts also warned of a possible flight-to-quality scenario, which occurs when a large number of investors move their asset allocation away from riskier investments into safer ones.

“Most likely we will see flight-to-quality trades towards the Japanese and Swiss assets as carry trades could be unwound. We are hoping US politicians will be able to resolve this issue to ensure they aren’t caught flat footed in case Asian geopolitical tensions escalate,” BPI’s Mr. Neri said.

Pantheon’s Mr. Chanco said in the event of a US default an “understandable flight to safety would have a detrimental impact on regional markets,” including the Philippines.

On the other hand, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said some investors may still have confidence in the US despite its troubles.

“We could see some investors still seek the relative safety of US assets or other traditional safe havens. This may result in a knee-jerk reaction of selling in the local equity and bond markets,” he said.

As of Tuesday, there was lack of clear progress in Washington on the debt ceiling talks. A deal to raise the debt limit should be approved by both chambers of US Congress.

“For obvious reasons, it’s very difficult to know what might happen should the US default, as that would bring the global economy and financial markets into unprecedented territory,” Mr. Chanco said.

Makoto Tsuchiya, assistant economist from Oxford Economics Japan, said that a deal is still possible beyond the June 1 deadline since the US Treasury could issue securities to roll over maturing debt.

“While the Treasury will still need to pay interest payments, there are no large payments in early June. The first notable interest payment will occur in mid-June, when the Treasury will have sufficient cash from tax collections, and the first real risk of a missed interest payment would be in late July,” he said. — with Reuters

Click to comment

Leave a Reply

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

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!



SEOUL/TOKYO — Japan on Monday put its ballistic missile defenses on alert and warned that it would shoot down any projectile that threatened its...


WASHINGTON — US President Joseph R. Biden on Sunday finalized a budget agreement with House Speaker Kevin McCarthy to suspend the $31.4-trillion debt ceiling...


MILAN — The waters in Venice’s main canal turned fluorescent green on Sunday in the area near the Rialto bridge and authorities are seeking...


ANKARA — President Tayyip Erdogan extended his two decades in power in elections on Sunday, winning a mandate to pursue increasingly authoritarian policies which...


CAGAYAN Valley pride Jan Clifford Labog shocked heavy favorite International Master Michael Concio, Jr. yesterday to seize a share of the lead with his...


Games Today (Ynares Sports Arena) 5 p.m. — Blackwater vs Terrafirma 7:30 p.m. — Converge vs Magnolia SHORT in numbers but not in heart,...

You May Also Like


Almost 100 jobs are thought to be under threat at smart home energy technology manufacturer myenergi. The Grimsby firm, named one of the UK’s...


THE MARCOS administration’s plan to revive the Philippine Sugar Corp. (PHILSUCOR) has raised concerns from stakeholders, who said this may duplicate other agencies’ existing...


Canary Wharf Group and The Felix Project, a food redistribution charity have agreed a long-term partnership that will see them join forces to tackle...


By Luisa Maria Jacinta C. Jocson, Reporter EL NIÑO may weigh on Philippine economic growth this year, as the agriculture sector is vulnerable to...

Disclaimer:, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.