Debt Deal Faces Congress

Rates plummet, reverse some of last week’s move. Swap rates and Treasury yields fell across the curve today, largely spurred by hopes that Congress will pass the debt-deal announced this weekend. Further fueling the move was a weak Dallas Manufacturing level, which came in at -29.1, much lower than the -18.0 forecast. The 2-year and 10-year yields both declined ~11bps to 4.45% and 3.69%, respectively.

Debt ceiling deal faces challenges in Congress. This weekend, President Biden and Speaker McCarthy struck a deal to avert a default, but objections from members of Congress stand in the way of a final resolution ahead of the June 5th deadline announced by the Treasury, the date when it will no longer be able to pay all its obligations. Among the flashpoints are Freedom Caucus claims that spending cuts are not large enough, an extension to work requirements to get food stamps supported by Republicans, a last-minute addition to approve the Mountain Valley natural gas pipeline opposed by Democrats, permits to expedite energy projects supported by Republicans, and an increase in defense spending that some Republicans deem insufficient, since the increase does not keep pace with inflation. In response to the deal, some conservatives have threatened to oust Speaker McCarthy, which he dismissed today, saying that supporting the deal is “an easy vote for Republicans.”

Day ahead. Mortgage data will lead the day at 7 AM, which will be followed by Chicago PMI and job openings figures later in the morning. Fed members Michelle Bowman, Patrick Harker, and Philip Jefferson will make public comments. The Fed Beige Book will be released at 2 PM.

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