Don’t Be Too Excited For A Deal. A Debt Ceiling Deal Could Spell Bad News For The Market
Mondeum Capital (UK) Limited
A U.S. default on its debt would have disastrous consequences for the stock markets and bond yields, causing investors to be on edge as politicians work to reach a compromise before the U.S. Treasury runs out of cash to pay its bills. However, a debt-ceiling deal won’t necessarily be all good news for investors or the U.S. economy, as Republicans are pushing for sharp spending cuts at a time when the economy is appearing to slow down.
Additionally, there will be a flood of Treasury issuance after the deal isreached, which will drain liquidity from markets and weigh on risk assets. The potentialbig cuts to government spending could also result in slower economic growth in 2024 and beyond.
The Treasury will need to immediately rebuild its cash balance in the General Account after a deal is reached, which means a flood of Treasury bill issuance in early June that could increase yields and pull cash out of the system, leading to liquidity tightening. While any deal to lift the debt ceiling would be betterthan no deal, it won’t necessarily be an all-clear signal for markets beyond a short-term bounce.
This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.
Featured Courses
Recent news
OpenAI Weighs 5% U.S. Government Stake Ahead of Blockbuster IPO
OpenAI has held discussions about offering the U.S. government a 5% ownership stake, potentially structured through a sovereign wealth fund, according to a Financial Times report citing people familiar with the matter. The ChatGPT maker did not immediately respond to a request for comment. The move would add Washington to an already formidable roster of […]
Tesla Deliveries Loom as Investors Bet on Second Straight Quarterly Gain
Tesla is poised to report second-quarter delivery figures Thursday morning, capping a period marked by geopolitical conflict, a spike in oil prices, and continued fallout from shifting U.S. electric-vehicle policy. The automaker’s shares have rallied sharply ahead of the report, a signal that investors anticipate a strong outcome. Even so, forecasts vary widely enough that […]
Nvidia Stock Trails Chip Peers in First Half as Competition Broadens
Nvidia shares rose 0.4% to $195.75 in premarket trading on Tuesday, ending a first half that trailed the broader semiconductor sector. The stock is up 4.5% for the year through Monday, much less than the PHLX Semiconductor Index’s 94% gain over the same period. Here’s a look at why Nvidia has underperformed and what investors […]
Trade with fewer limits
Day trade with fewer limits at fast speed. Buy stocks and ETFs at low fees.