As Congress prepares for war over raising the debt limit, the Treasury market’s self-regulatory body is working to lessen the potential market impact. The Securities Industry and Financial Markets Association, which oversees the $14.1 trillion Treasury Market, is already preparing for the worst.
Debt-Ceiling Deadline Draws Near
U.S. lawmakers are racing against the clock to approve new spending measures and raise the debt ceiling before the Sept. 30 deadline. However, this year’s debate is complicated by President Trump’s request to make appropriations for a border wall with Mexico. The request passed the initial hurdle after the House approved a spending bill with $1.6 billion allotted for the wall.
Trump has warned Congress that he is prepared to close down the government if the bill doesn’t clear the Senate.
SIFMA Looks to Past Debt-Ceiling Incidents
SIFMA is revisiting past debt-ceiling incidents in a bid to lessen the market impact of a government shutdown. The group’s main focus is how trading, clearing and settlement would be impacted should debt payments be delayed.
SIFMA’s main assumption is that, if the Treasury misses the deadline and chooses to delay debt payments, it will do so only on a day-by-day basis. Theoretically, this would give SIFMA enough time to coordinate with member firms, such as Morgan Stanley and BlackRock, to manually change maturity dates on securities.
Although Senate Majority Leader Mitch McConnell has guaranteed that the debt limit will be raised in time, analysts are far less optimistic. Goldman Sachs told clients this month there is a 50% chance of a government shutdown come Oct. 1.
Trump’s Popularity Takes a Hit
The president’s popularity has nosedived since inauguration, with Goldman analysts citing a 37% approval rating through mid-August. That’s down one point from the July average of 38%.
Trump is waging multiple battles on the domestic and international fronts. Although allegations of Russian collusion have abated in recent weeks, the media have focused on the president’s response (or lack thereof) to the race riots in Charlottesville, VA.
At the same time, Trump has upped the rhetoric on North Korea over its missile program. This week, the president said all options are on the table for confronting Pyongyang after the Communist regime launched a missile over Japan.
Overall, the election of Donald Trump to U.S. President has been a boon to Wall Street. U.S. equities have soared to record highs since the November election. The gains have been fueled almost entirely by hopes that tax cuts, deregulation and fiscal spending will boost economic growth.