Shine Trader Live reports:
Speaking Thursday morning local time about the debt ceiling, which has an October deadline, ScottSkyrm, a buyback expert at New York aspiring securities, said:
“In past years, Congress has been able to reach a compromise before the debt ceiling expires, but this year, the debt ceiling issue has further roiled the bond markets as the October deadline (which has not yet been set) approaches, increasing the risk of a default in the market.”
As the chart below shows, price distortions in the bond market are becoming more pronounced, with the spread between Treasury bills maturing on October 5 and November 12, 2021, the period that coincides with the debt ceiling deadline.
Note: T-bills are Treasury bills issued within one year.
The chart below shows a significant widening of the Treasury curve in the early November time horizon.
It is worth mentioning that U.S. Treasury Secretary Janet Yellen sent a letter to Congress this week urging congress to act as soon as possible to raise the federal government’s debt ceiling or suspend it, otherwise it could cause irreparable damage to the U.S. economy and global financial markets.
The extraordinary measures being taken by the Treasury Department could run out in October, when the government faces a default on its debt.
So how does the coming debt-ceiling drama play out?
According to Goldman Sachs, there are two possible scenarios:
The first case:
The most likely scenario is for Democrats to attach a debt ceiling suspension to an upcoming spending bill to avoid a government shutdown, followed by emergency relief funds to repair the damage caused by the storm in the west, east and south.
Forty-six Republicans are widely expected to vote to block an increase in the debt ceiling, and the strategy (attached to the spending bill) is likely to fail.
But the hard-hit states republicans may have different opinions, they may consider vote, but not for other, makes the bill in the senate with only 51 votes, if so, spending bill still need to get most of the Democratic Party’s consistent support (there can be at most three extra votes), it is possible.
The second case:
If the spending bill is rejected by all Republicans and ends in bipartisan gridlock. The Biden administration would then have to decide whether to shut down parts of the federal government to rein in spending, or remove the strings to allow the spending bill to pass, or even enforce it.
Although Goldman sachs thinks this scenario is less likely, it is still possible. It mainly depends on the following two questions:
1. For starters, it’s not certain within the Democratic Party that all Democrats will support raising the debt ceiling. If Democrats end up using reconciliation to reach a budget resolution, senate rules would only raise the debt ceiling to a certain amount, which could fall short of the Biden administration’s demands and cause even more political problems.
Stopping the debt ceiling from taking effect has been a relatively common practice over the past decade, with fewer instances of specific quotas.
2. The house of Representatives is even considering passing parts of The $3.5 trillion spending bill ceiling portion of the spending bill is likely to delay consideration for weeks or more.
The clock is ticking, and if Democrats wait until Sept. 30 for a spending bill to pass, they won’t have enough time to complete the next steps to raise the debt ceiling.
In other words, the debt ceiling issue will probably be resolved at the eleventh hour (as it has been before), and no other resolution is likely. (After all, the alternative would have been disastrous for the United States.)
But as things stand, the longer the meeting takes and the longer congress waits to act, the riskier the debt ceiling will become.
If the settlement process or any other process were suddenly voted against at the last minute, there could be all kinds of chaos in financial markets.
Reprint indicated source：Shine Trader Limited Live information