The United States has temporarily escaped debt robbery, and the risk of default is postponed to December?

The leaders of the two parties in the Senate reached a new agreement that is expected to prevent the federal government from defaulting until December. In order to enable the Ministry of Finance to cope with various payment requirements until December 3. Negotiation related news drove the major US Wall Street stock indexes to close sharply on Thursday, and the market generally rose. The bond market also breathed a sigh of relief. One-month Treasury bill yields fell to the lowest level since September 8 as a sign. Investors believe that the risk of default has eased.

The two parties reached a short-term agreement, the debt crisis may ease

The U.S. Senate on Thursday took a step towards passing a $480 billion increase in borrowing authority for the Treasury Department. Senate Democratic leader Chuck Schumer plans to debate a four-hour debate on a bill that will increase the authority to raise debt by $480 billion, enough to keep the Treasury Department’s borrowing and spending at least until December 3. Currently this agreement is still awaiting a vote in the Senate.

If all 100 senators agree, the debate time may be shortened, but it is unclear whether all 50 senators in the Republican Party will agree. If, as expected, the first obstacle restricting the debate on the bill can be cleared, the Senate will prepare to vote on raising the debt ceiling from the current $28.4 trillion to $28.9 trillion.

Another problem is that McConnell is still struggling to win at least nine Republicans to support Schumer's procedural vote. North Dakota Republican Senator Kevin Cramer said he will vote against procedural motions and the content of the bill. He said that McConnell has not yet received the required number of votes. Senator John Cornyn of Texas said that it is possible that Republican congressmen may not get 10 votes sufficient to advance the bill, which is not a good thing.

Cornyn said that leaders of both parties are seeking MPs to agree to skip procedural voting because many plan to leave before the week-long recession begins. Texas Senator Ted Cruz said that whether the vote is held on Thursday or later, it doesn’t matter to him: “I have no worries about timing. What I don’t want to approve of is anything lowering the threshold. This will only make it easier for Schumer and the Democrats to increase trillions of dollars in debt."

If the Senate cannot agree on the steps to expedite the passage, the debate may continue until Friday or weekend. The bill must also be passed in the House of Representatives, just like the Senate, the House of Representatives will adjourn next week. But as long as 72 hours' notice, the House of Representatives can be recalled to Washington to vote. Schumer said earlier on Thursday: "We have reached an agreement to extend the debt ceiling until early December, and hope to complete this work today."

Gennadiy Goldberg, a strategist at TD Securities, said: "If it is really $480 billion, that is a considerable number. The Treasury should have enough room to reset their special measures and postpone the'x day' that may run out of cash to 2022. February or even March." However, after that, Congress still needs to vote to resolve the debt ceiling. Although the alarm is lifted, the December default crisis is already looming.

The crisis was postponed but not really resolved

But even if the bill is passed, it does not mean that Washington’s debt ceiling problem has been resolved. The different opinions of the two parties have caused the previous stalemate. Senate Republican leader Mitch McConnell is still expected to insist that the next increase in debt-raising authority in December will be achieved through a complicated "budget legislation negotiation" process. This process is very time-consuming, but it will allow relevant bills to be implemented without Republican support. Circumstances are passed.

Democrats firmly oppose the use of the program on the issue of budget caps, saying it is very inflexible and will set a bad precedent. But they already intend to use the program to pass some of Biden's other priorities. When talking about the agreement to extend the debt ceiling to December, McConnell said in a speech in the Senate: "There will be no doubt now. The Democrats will have plenty of time to raise the debt ceiling through the next legislative negotiation process. .

Although the above agreement temporarily eased the pressure on the debt ceiling, it did not really solve the root cause of the stalemate between the two parties. It is foreseeable that entering December, the two parties may continue to wrestle over the debt ceiling issue, and the risk of default will suddenly rise again.

Congress was very busy in December. The new debt ceiling and the current expedient spending bill to avoid government shutdown will both expire on the 3rd. The Democrats also hope to pass a $550 billion cross-party infrastructure bill and Biden's comprehensive economic spending plan before the end of the year. All this will consume a lot of time and energy.

The confrontation between the two parties has eased, and the market breathes a sigh of relief

Although the debt ceiling agreement avoids an imminent crisis, it means that the struggle between the two parties will become more complicated by the end of the year. By December, in addition to the debt ceiling, Congress is also facing the issue of a government "shutdown" because regular fiscal funds will be used up. Setting the debt ceiling and the expiration date of the expedient spending bill on the same day makes it more likely that Congress will resolve both issues in a single bill. Such a bill may include an agreement on the highest level of spending for fiscal year 2022.

The worst-case scenario is that the two parties continue to fight, unable to suspend or raise the debt ceiling, leading to a federal debt default. Fitch Ratings previously stated that the US AAA rating may not be guaranteed in this case. Considering that the two parties may not be able to bear the potential impact of default on the credit and economy of the United States, the possibility of such a situation is still relatively small. Mark Cabana, head of interest rates at Bank of America, said: "Both parties are playing a dangerous'coward game', and no one wants to back down until the last minute."

Negotiation related news drove the major US stock indexes on Wall Street to close sharply on Thursday, and the market generally rose. Due to the temporary subsidence of economic risks from fiscal tightening, the S&P 500 index moved towards its biggest three-day gain since April. The bond market also breathed a sigh of relief. One-month Treasury bill yields fell to the lowest since September 8 is a sign that investors believe that the risk of default has eased (as shown in the figure below).



Before the two parties reached an agreement to raise the debt ceiling for a short time, the yield on Treasury bonds maturing on October 21 rose sharply and reached 0.1325%, while the yield on most Treasury bonds due around this maturity date was 0.05% or lower. After the agreement is reached, the yield curve no longer shows that there is a risk of default on the treasury bonds maturing in October. Instead, the yield of the treasury bonds maturing in December has risen. The yield on the treasury bonds maturing on December 16 was once as high as 0.085%, which was higher than the nearby time. The yield of Treasury bonds.