The US debt ceiling saga resumes

Invesco Fixed Income Investment Insights
 

Aug 16, 2017 | Invesco Fixed Income

Key takeaways

  • The US Congress is again being asked to raise the federal borrowing limit, or debt ceiling.
  •  US Treasury Secretary Steven Mnuchin told Congress that  the debt ceiling should be raised by September 29, or the government risks running out of funds to pay its obligations.1
  •  Since March 2017, the Treasury has utilized “extraordinary  measures” to meet its obligations, but these are estimated to run out in late September or early October.
  •  We remain optimistic that the US Congress will pass  legislation to raise the debt ceiling (or temporarily suspend  it), although the decision will likely come down to the wire and the process will likely be contentious.
  •  We expect yields on US Treasury bills (T-bills) that mature in early October to be the most affected and rise significantly  as we approach the September 29 deadline.
  •  However, we expect the longer segment of the US Treasury bill yield curve to be pressured downward as the US Treasury cuts T-bill supply to comply with the current debt limit.

Once again, the US debt ceiling is in focus. Since March, the US Treasury has employed ”extraordinary measures” to fund the US government, such as halting contributions to certain government pension funds and borrowing money set aside to manage exchange rate fluctuations. But those measures are set to run out this fall.

1 Source: US Department of the Treasury, July 28, 2017. Wall Street Journal, July 31, 2017.

 

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