By David Randall

NEW YORK (Reuters) – The slim-but-growing possibility of a fiscal crisis if Congress doesn’t act on the debt ceiling is getting increasing attention from U.S. investors and is filtering into certain asset prices, though few believe the nation will ultimately default.

Wall Street bankers and policymakers have all warned of the danger that negotiations could collapse. Jamie Dimon, chief executive of JPMorgan Chase & Co (NYSE:), said the bank is preparing for what could be a “potentially catastrophic event,” while New York Federal Reserve Bank President John Williams warned of potential negative market reaction if no solution is found to the debt-ceiling issue.

Jon Adams is senior investment strategist at BMO Global Asset Management. “There are significant tail risk in the near term and a busy legislative calendar for the next few weeks.” “We believe that eventually, cooler heads prevail.”

As the U.S. Congress approaches two close deadlines, there are some signs of nervousness in U.S. markets. These deadlines will be met to finance the government and resolve the nation’s $28.4 billion debt ceiling. The deadline for Congress to stop the government shutdown is Sept. 30, Janet Yellen, secretary of the Federal Reserve has urged Congress for action before October 18, to prevent “serious harm” from being caused to the economy.

Randy Frederick, Schwab Center for Financial Research managing director for trading derivatives and trading, stated that while it’s fine if the government is shut down, they should not be doing much. However, he said that if the federal government continues to play with the debt ceiling, this could lead to “serious harm” to the economy.

Recent equity weakness was attributed to the possibility of Congress failing to take action in time. Analysts believe that concerns over the debt limit have helped to boost the U.S. currency.

The current situation is still in limbo. The Democrats in Congress stated Wednesday that they would vote against a government shutdown. Funding expires Thursday at midnight. Although the Senate and House could vote separately on a bill temporarily lifting the debt limit to pass, Senate Republicans have refused to approve it.

Even though the United States has already been at the end of this matter before, investors remain sceptical.

Kathy Jones, Schwab Center for Financial Research’s chief fixed income strategist said that it is difficult to determine if investors really care about the debt ceiling. It’s unlikely that you don’t if you think rationally, since it always gets solved. It’s not something you should ignore.

Wells Fargo (NYSE:) analyst Michelle Wan wrote on Tuesday that investors have “so far responded with a shrug” to the looming deadline, with complacency “rooted in past compromises that avoided defaults and other payment disruptions.”

The Treasury bills market has shown signs of nervousness due to the debt ceiling. Tallbacken Capital Advisors’ CEO Michael Purves noted Monday that tension is evident in three-month bill pricing. These bills “presumably won’t be burdened default risk”, compared with the one-month bills. Purves noted that the pricing of three-month bills has not yet reflected more drastic spikes in 2011 and 2013.

One-month bills yield 0.077%, which is higher than the 0.04% yielded by three-month bills. Each bill yielded 0.08% in the first year.

Portfolio managers are known to avoid default risk issues such as bill payments, regardless of the possibility of missed payments. The unusual situation of a longer-dated issue generating higher yields than the ones on older debt can lead to a steeper yield curve.

Debt ceiling stress: https://graphics.reuters.com/USA-ECONOMY/DEBT-CEILING/byprjldaape/chart.png

Analysts at BMO said that “as investors’ attention remains trained on Washington the distortions” in the front end of the yield curve “are likely to persist until an accord is reached.”

Another sign of concern was the sharp rise in U.S. credit default Swaps that are not widely traded.

Markets have been affected by previous crises but it was only temporary. A technical default and subsequent downgrade of U.S. debt in 2011 helped push the almost 20% from its high before it rebounded.

Weakening effects from debt ceiling standoffs: https://graphics.reuters.com/MARKETS-DEBTCEILING/DECLINES/akvezqrrrpr/chart.png

Another prolonged debt-ceiling negotiation in 2013 pushed the S&P 500 down 5.8%, but there was little market reaction to similar deadlines in 2016 or 2018 as Wall Street began to see the threat of crisis as manufactured, said Sam Stovall, chief investment strategist at CFRA Research.

According to Peter Crane of Crane Data which is a research company that specializes in the money market, markets sensitive like money markets are not showing an increase of panic.

Crane stated, “They may pull it off at the last moment but everyone knows that both sides are lying.”