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Do Rates Care About Debt Ceiling?

It was nearly impossible to avoid news regarding the debt ceiling this week, but how much does it actually matter? Let’s make sure we’re on the same page first.  What follows are a few NON-POLITICAL thoughts on the debt ceiling, which is different than a “default.”   The debt ceiling has to be increased periodically in order for the US government to borrow enough money to fund day to day operations.  There’s theoretically a point at which the government doesn’t have enough money to make payments that it had already agreed to make in the past.  That money can come from the issuance of Treasury debt (i.e. borrowing) or from sources of revenue (such as taxes). In that theoretical scenario, the US could default on its obligations and that would be incredibly serious.  A missed payment on Treasury bills, for instance, could cause major fallout in financial markets.  It has never happened and is all but guaranteed to not happen this time either. We can’t know with certainty exactly how long the government could make ends meet if it really had to, but it’s certainly longer than claimed, regardless of any drop dead dates you may see in the news. That leaves us with what is mostly an exercise in political theater and/or brinksmanship on both sides of the aisle (no value judgments in this newsletter, ever).  Despite that, some traders take logical, defensive measures JUST IN CASE this happens to be the time where we finally see a default (even if it’s very temporary and heavily qualified).  
Source: mortgagenewsdaily.comNew feed

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