If a political battle causes the US government to slip past the X date, the Treasury could prioritize interest payments over other obligations. We think the recent prolonged battle to elect the Speaker of the US House of Representatives may make negotiations to raise the debt ceiling particularly arduous. This debt ceiling episode could prove the most disruptive since 2011, when credit rating agencies downgraded Treasury bond ratings. We think investors estimate the timing around July or August. Though, that may be intentionally conservative to create urgency. Yellen last week cited June as the X date. Once that amount has run out, the government reaches the X date, which has never happened, and could enter default. The government can continue to issue debt but only to a finite amount. It's part of the Treasury's playbook, used before to continue funding the government while Congress negotiates setting a higher debt ceiling, often with some political drama. Let's take a closer look.Įxtraordinary measures are government accounting maneuvers with no impact on the government's budget or economic growth. This sets the clock for investors toward the so-called X date when the government could enter default and spark losses in the bond market. Investors have started to zoom in on downside risks as the US Treasury Secretary Janet Yellen said last week the country reached its $31 trillion debt limit and must invoke extraordinary measures to fund government operations and issue debt.
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