60-second summary
US debt ceiling debacle: scope for heightened yield volatility and worse
01 Jun 2023
As US debt levels reach the ceiling of $31.4trn, a potential default by the US on its government debt is an increasing concern. While a US default may still be unlikely, the ongoing political impasse between Democrats and Republicans could increase market volatility, particularly in sovereign bond markets.
Background
The US technically breached its $31.4trn debt limit in January, which means the government cannot technically issue any new debt. Since then, the Treasury has been using various ‘extraordinary’ measures to pay the government’s obligations on time. The exact date at which the US will run out of funds is highly uncertain, as it’s dependent on the timing and amount of incoming federal tax receipts.
Treasury Secretary Janet Yellen suggests a technical default could occur as soon as early June, while the Congressional Budget Office has suggested that extraordinary measures would likely be exhausted sometime between July and September.
With this in mind, we've created this 60-second summary to provide:
- Further background on US debt
- What options the US Federal Reserve and Treasury have
- The market impact
If you have any questions, please get in touch.
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