US: Market Response to Debt Cap Issues
2023-05-15
■The deadline for the increase in the US federal debt ceiling is expected to be June 1st. The United States may be at risk of default.
■ In 2011, with the downgrade of the United States, stock prices fell and treasury bonds rose. This may also increase market risk.
The Biden administration and Republican congressional leaders began talks on raising the federal debt limit on the 9th. Biden called on Congress to unconditionally raise the debt ceiling, while House Speaker McCarthy called for significant spending cuts as a condition for raising the ceiling. The US federal debt reached its limit on January 19, 2019 (approximately $31.4 trillion), and the US Treasury Department took special measures to manage cash on hand. The next round of talks was originally scheduled for the 12th, but it is reported to have been postponed to this week.
The Council of Economic Advisers of the President of the United States (CEA) once predicted that if the US treasury bond defaults, the economic impact of the third quarter will increase the number of unemployed people by 500000, and the unemployment rate will fall to 0.3%. After calculation, the real GDP growth rate will decline by 0.6 percentage points. If extended, the number of unemployed people will increase by 8.3 million, the unemployment rate will increase by 5.0 percentage points, and the actual GDP growth rate will be reduced by 6.1 percentage points. The market expects that the debt ceiling will eventually be raised, suspended, or temporarily extended to avoid the default of US treasury bond bonds. However, as June 1 approaches, investors' hedging attitude seems to be strengthened.
When the debt ceiling issue surfaced in 2011, they agreed to raise the debt ceiling on August 2nd, the deadline for cash flow stagnation, to avoid default. However, on August 5th, a major US credit rating agency downgraded the credit rating of long-term US issuers from "AAA" to "AA+", citing insufficient efforts to reduce the US budget deficit. From the financial market trend at that time, the S&P 500 index fell 6.3% (1339 points → 1254 points) from July 1 to August 2, and then fell 12.4% until it bottomed out on October 3 (1254 points → 1099 points) After falling 57 basis points (3.18% to 2.61%) from July 1 to August 2, the yield of 10-year US treasury bond fell 89 basis points (2.61% to 1.72%) before reaching the bottom on September 22. When default occurs, major rating agencies in the United States will raise the rating of US treasury bond bonds to "RD" (restrictive default: partial default), and raise the rating of affected government bonds to "D" (default: default) until the default has been resolved. It is expected to score. In 2011, investors began purchasing long-term government bonds, believing that even if a default occurred, it would be very short-term, with adverse effects limited to short-term Treasury bills. This time, a default may exacerbate concerns about regional bank management in the United States, as well as concerns about commercial real estate liquidity.
■ In 2011, with the downgrade of the United States, stock prices fell and treasury bonds rose. This may also increase market risk.
The Biden administration and Republican congressional leaders began talks on raising the federal debt limit on the 9th. Biden called on Congress to unconditionally raise the debt ceiling, while House Speaker McCarthy called for significant spending cuts as a condition for raising the ceiling. The US federal debt reached its limit on January 19, 2019 (approximately $31.4 trillion), and the US Treasury Department took special measures to manage cash on hand. The next round of talks was originally scheduled for the 12th, but it is reported to have been postponed to this week.
The Council of Economic Advisers of the President of the United States (CEA) once predicted that if the US treasury bond defaults, the economic impact of the third quarter will increase the number of unemployed people by 500000, and the unemployment rate will fall to 0.3%. After calculation, the real GDP growth rate will decline by 0.6 percentage points. If extended, the number of unemployed people will increase by 8.3 million, the unemployment rate will increase by 5.0 percentage points, and the actual GDP growth rate will be reduced by 6.1 percentage points. The market expects that the debt ceiling will eventually be raised, suspended, or temporarily extended to avoid the default of US treasury bond bonds. However, as June 1 approaches, investors' hedging attitude seems to be strengthened.
When the debt ceiling issue surfaced in 2011, they agreed to raise the debt ceiling on August 2nd, the deadline for cash flow stagnation, to avoid default. However, on August 5th, a major US credit rating agency downgraded the credit rating of long-term US issuers from "AAA" to "AA+", citing insufficient efforts to reduce the US budget deficit. From the financial market trend at that time, the S&P 500 index fell 6.3% (1339 points → 1254 points) from July 1 to August 2, and then fell 12.4% until it bottomed out on October 3 (1254 points → 1099 points) After falling 57 basis points (3.18% to 2.61%) from July 1 to August 2, the yield of 10-year US treasury bond fell 89 basis points (2.61% to 1.72%) before reaching the bottom on September 22. When default occurs, major rating agencies in the United States will raise the rating of US treasury bond bonds to "RD" (restrictive default: partial default), and raise the rating of affected government bonds to "D" (default: default) until the default has been resolved. It is expected to score. In 2011, investors began purchasing long-term government bonds, believing that even if a default occurred, it would be very short-term, with adverse effects limited to short-term Treasury bills. This time, a default may exacerbate concerns about regional bank management in the United States, as well as concerns about commercial real estate liquidity.