WASHINGTON (MNI) – The following is a roundup of key developments
and events Thursday on the ongoing stand-off over the U.S. debt
ceiling:

* House Speaker John Boehner said Thursday the raging dispute
surrounding the debt ceiling could end if the Senate takes up the
legislation that he expects the House to pass later in the day. At a
briefing with House Republican leaders, Boehner repeatedly referred to
the House GOP bill as “bipartisan” and “compromise” legislation — an
assertion that Democratic leaders have dismissed as inaccurate. Boehner
called his bill “reasonable, responsible” legislation, adding that it is
“as large a step as we are able to take at this time” to deal with
budget deficits.

* The House is expected to vote on Speaker John Boehner’s
revised deficit reduction plan Thursday evening between 5:45 p.m. and
6:15 p.m. ET.

* In the agency bond market, Fannie Mae Tursday announced that
it would not issue a Benchmark Note, which was widely expected to be the
case by most market sources. Sources have said that factors such as lack
of progress with respect to U.S. debt ceiling/budget deficit
negotiations, uncertainties looming over a possible U.S. sovereign
rating downgrade and recent volatilities in the agency bond market
contributed to Fannie Mae’s decision.

* Sources noted that recent agency bond trading activity has
been “volatile” with one veteran bond trader observing that most agency
bond traders have been in “disaster mode” this week. “People are
anticipating redemptions in money market funds” in the event of a U.S.
sovereign rating downgrade, one trader said.

* As the August 2 deadline to raise the federal debt ceiling
draws nearer, the U.S. government will make clear the plans it has in
place to operate if Congress does not increase its borrowing authority,
a U.S. Treasury official told Market News International Thursday. This
as a White House spokesman told reporters that although a “grand
bargain” on the debt limit and deficit reduction remains on the table,
the chances of a sweeping deal being reached before Aug. 2 “aren’t
great.”

* Senate Majority Leader Harry Reid Thursday said his office
“hand delivered” House Speaker John Boehner a letter yesterday saying
all 53 Senate Democrats are opposed to his debt hike bill and will vote
against it if the legislation passes the House. Reid touted his plan to
raise the debt limit, but also signalled he is open to altering it when
the debt ceiling debate shifts to the Senate.

* House Minority Leader Nancy Pelosi said Thursday that she
hopes bipartisan debt limit talks will resume after the House votes on
the Republican debt ceiling plan this evening. At a briefing, Pelosi
offered a scathing assessment of the House Republican debt ceiling plan,
calling it a draconian “ideological document” that would be a “job
killer” for the American economy.

* Senate Minority Leader Mitch McConnell blasted Senate
Democrats for threatening to block Boehner’s bill if it comes over from
the House. He said he is “shocked” by that threat. McConnell said the
only real sticking point between the two sides now is the Republican
insistence that there be a two-step debt ceiling increase process, with
a debt hike now and another one next year.

* Mexico’s Finance Minister Thursday said even if the United
States raises its debt ceiling, that might not stop credit rating
agencies from downgrading the country’s sovereign rating due to its
unbalanced budget. Ernesto Cordero also said if the debt ceiling is not
raised on time, financial markets around the world will experience
turbulence and very strong uncertainty, including in Mexican capital,
stock and exchange markets.

* In a statement Thursday, the Mortgage Bankers Association said
it is very concerned about the implications to the financial system of
the United States if the U.S. defaults on its debt. Warning the likely
impact to the financial markets, interest rates, and to every family in
America will be costly, the MBA implored policymakers “to act swiftly
and find a workable solution, given the short time left, to take this
step and not put the credit rating of the United States in jeopardy.”

* U.S. Treasury prices were higher and midrange at midday
Thursday as earlier buying flows evaporated and as the $29.0 billion
7-year note sale was a slight disappointment. At 1:25 p.m. ET, the yield
on the 10-year note was 2.951% versus the intraday low of 2.929% at 9:00
a.m. ET and 2.982% at 3:00 p.m. ET on Wednesday. Traders said debt
ceiling uncertainty coupled with a lack of a set up was not the best set
up for the sale.

–Editor: Brai Odion-Esene; besene@marketnews.com

** Market News International Washington Bureau: 202-371-2121 **

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