In mid-January the U.S. Treasury Department bumped up against the legal debt ceiling of $31.4 trillion, limiting its ability to increase debt issuance to pay the government’s bills.  An act of Congress will be necessary to increase or suspend that limit, something that has been done many times (78) since the practice began in 1917.  The U.S. Treasury has resorted to special measures to continue paying its current obligations.  These extraordinary measures are anticipated to run out some time this summer, but the timing will depend on a number of factors including tax receipts.  For now, these measures do not impact payment on any currently due obligations as the Treasury is primarily saving cash by deferring payments to various government pension programs.  Payments to current beneficiaries of these programs continue uninterrupted. 

The details of when these measures will run out and which obligations the Treasury would prioritize is not perfectly clear (estimates suggest July or August).  Regardless of the details, this development certainly raises concerns about the risk of another government shutdown — or worse, an actual default on the interest and/or principal owed to holders of U.S. Treasury obligations (Bills, Notes & Bonds), which has never previously occurred.   

For investors, betting on the outcome of this political game of chicken is purely speculative.  As long-term oriented investors, our primary objective is to be thoughtful about mitigating potential risks considering the various scenarios that may play out.  Below we try to shed some light on common questions and provide some context for investors to put the debt ceiling debate in perspective.     

After a historically difficult 2022, markets rebounded at the start of 2023 on building optimism that the Fed can navigate a “soft landing” for the economy. In this quarterly piece, Pathstone’s Managing Director of Strategy, John Workman, reflects on the macroeconomic picture and what that means for bottom-up portfolio construction heading into 2023.

Both stocks and bonds rallied in January on better than expected inflation and GDP data. The S&P 500 posted its 2nd best start to the year since 1990 despite widespread concerns of a recession. Global central banks have suggested that they will slow the size and pace of interest rate hikes as headline inflation starts to meaningfully cool. The possibility of less restrictive monetary policy increased demand for bonds, caused yields to fall and stocks that had been beaten down in 2022 found a resurgence.