The Tell
In the month before past debt-ceiling deals, stocks fell about 6.5%, according to Pimco
The Republican-run House on Wednesday passed a debt-limit bill, which is seen to have no chance to be passed in the Democratic-controlled Senate.
AP
Congress and the White House are likely to reach a deal to lift the U.S. debt ceiling, but only at the last minute, according to bond giant Pimco.
With the standoff expected to go down to the wire, investors should brace for further market volatility before a debt-ceiling deal can be reached, said analysts at Pimco, which manages $1.8 trillion assets.
Analysts…
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Debt Ceiling Woes Stir Market Unease
Financial markets are increasingly showing signs of unease as they anticipate the US government’s debt ceiling deadline fast approaching. Market analysts are speculating that the US government will likely face further debt struggles and difficulties in the near future as a result. As the situation continues to unfold, Pacific Investment Management Company LLC (PIMCO) is preparing for what may come of the looming debt ceiling.
The current US debt ceiling stands at $22 trillion, with the legislation authorizing a maximum of $1.34 trillion in new Treasury debt through the first quarter of 2021. As this debt figure approaches, the US government may recognize a need to increase the debt ceiling yet again to avoid defaulting on payments. This news has sparked some unease in the markets and has led PIMCO to provide guidance on what the impact of the debt ceiling could look like.
PIMCO states that this looming debt issue could have serious ramifications for the markets. They estimate that the most significant movement in the market as a result of the debt ceiling will be in the US Treasury market, as the government could theoretically be forced to issue new bonds to generate funds for debt obligations. While analysts at PIMCO don’t anticipate this being a long-term issue, the possibility of a tipping point could be imminent, which could cause further financial volatility.
PIMCO further mentions that the debt ceiling is not the only economic concern to watch. They believe there is reason to be aware of economic indicators such as interest rates and the impact of the US-China trade negotiations, which have the potential to drive further market fluctuations.
Despite all of the economic data and industry analysis, it’s difficult to predict exactly what the outcome of the debt ceiling deadline will be. PIMCO and other financial institutions are continuing to monitor the situation closely, but there are still many unknowns. Nevertheless, the impending deadline and potential for long-term impacts of a potential breach serve as a reminder to investors and market participants to remain vigilant and prepared for any potential turbulence to come.
