Debt Ceiling Uncertainty Lingers

Rates rise continues. Swap rates and Treasury yields extended their climb from Friday, the 2-year yield rising nearly 9bps to above 4.00% for the first time since May 2nd. The 10-year yield rose 7bps to 3.51%, reversing from its lows of 3.29% just a few days ago. Futures suggest a low probability of any further rate hikes by the Fed, with the June FOMC meeting currently having an ~8% chance of a 25bp hike and rate cuts becoming more likely as of the July FOMC meeting and thereafter. Elsewhere, equities were mixed today, with the DOW falling 0.17% and the NASDAQ Composite rising 0.18%.

Debt Ceiling Woes. Another partisan bout of debt ceiling stalemate is occupying minds and markets, but less so than other developments in recent months with nearer-term, observable effects. While precedent says that lawmakers will eventually raise the ceiling, the risks involved with flirting with chaos should be examined. Given weaker than expected tax-receipts for the April filing season, some analysts predict that, absent a Congressional solution, the U.S. could default by early June, a deadline only made possible through special accounting maneuvers by the Treasury department following January’s $31.4 trillion statutory ceiling breach. If Congress can’t resolve the issue, Secretary Yellen noted today in her comments the potential for a “constitutional crisis,” whereby President Biden will be forced to invoke vague language in the 14th amendment to continue funding the government that would likely receive Congressional and Judicial pushback. 

Day ahead. Tomorrow’s session will be headlined by Fed commentary, which includes Philip Jefferson at 8:30 AM and John Williams in the afternoon. Economic optimism data will be released at 10 AM ahead of crude oil figures at 4:30 PM.