Markets upbeat as Washington talks

A trader smiles while working on the floor of the New York Stock Exchange on October 10, 2013 in New York City. The Dow Jones Industrial Average rose over 300 points as investors saw promising developments in Washington that could lead to a short-term deal that would keep the United States from defaulting on its debt.

**This story was updated on Oct. 10 at 7:10 p.m. EST.

Investors seemed pleased that politicians in Washington were discussing a plan to avert a government default, and that lawmakers from both parties met at the White House Thursday. Senate Democrats met with the President in the afternoon, House Republicans a little bit later.

But Guy LeBas, who is a chief fixed-income strategist at Janney Montgomery Scott, said the GOP proposal -- raising the debt limit for six weeks but not re-opening the government until further negotiations with the president -- wan’t something that would please investors who focus on the long term.

“To some degree, it’s like slapping a small bandage on a missing limb,” LeBas said. “You know, it’s not that effective for the really big underlying problem, but it does sort of staunch the bleeding for the short term.”

The markets reacted positively to some movement in Washington. There has been some turmoil in the bond market, especially with short-term Treasuries. Kevin Logan, chief U.S. economist at HSBC, said investors are still confident there will be a solution soon.

“I think most people in the market believe that, if there was such a default, it would only last a few days or a week at most.  And eventually, the Treasury would make good on all those securities,” Logan said. “You would get your money back.”

He said investors want to know what the end game is going to be, but they seem satisfied for the time being knowing that something is happening, and they are confident that the shutdown and the debate over the debt limit will be resolved.

About the author

David Gura is a reporter for Marketplace, based in the Washington, D.C. bureau.

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