Debt ceiling standoff: What’s the timeline for investors?

Key takeaways

Tax payments offer temporary relief
Tax receipts will buy the government a little time, though how long depends on how much money comes in.

Extraordinary measures continue
Moving money around helps the government stay under the ceiling in the short-term.

Markets face uncertainty
History has shown that market uncertainty will increase as the standoff continues, but the standoff should be resolved without incident.

Will the US government default on its debt? As the debt ceiling standoff between Democrats and Republicans continues, that question is getting louder. We have several months left before a possible default, and the prevailing uncertainty may be uncomfortable for investors. But opposing sides should come to an agreement and avoid the country’s first-ever default. Let’s look at a potential timeline of past and future events and what investors might expect.

Government hits debt ceiling – Jan. 19, 2023

The federal government hit the debt ceiling on Jan. 19, 2023. Reaching a legal threshold of just under $31.4 trillion, it could no longer borrow money to meet existing obligations. The government has since resorted to “extraordinary measures” to pay bills. That translates to prioritizing debt payments and delaying less critical payments (such as contributions to government pension funds) until the ceiling is raised.

Tax payments come due – April 18, 2023

With the government’s line of credit cut off for now, the only money it can spend is from its savings account (the Treasury General Account) and its income — our taxes.

Tax Day arrives this year on April 18. That’s the date by which Americans must file their personal tax returns, barring an extension. The Treasury General Account already has a relatively high cash balance, and tax receipts will add to it, but issuing debt is still necessary to meet our obligations over time. How much time our taxes will buy the government depends on many factors, including the state of the domestic economy and the actual amount received.

Extraordinary measures run out – as early as June 2023

The accounting measures that Treasury established in January have bought the government some time. Predicting when those measures will run out isn’t an exact science, but according to US Treasury Secretary Janet L. Yellen in a letter to Congressional leadership, extraordinary measures should last through June 5. There’s a lot of uncertainty around that estimate.

Cash balance likely exhausted – late August to October 2023

Once extraordinary measures run out, the Treasury will likely have enough cash to pay its debt obligations for most of the summer. And there may be a small boost of cash in September, when many corporations will make their estimated tax payments for the third quarter. That could give the government until October to avoid default.¹

What does this mean for investors?

Coming up with a more precise date is impossible given all the moving parts. The further along we get in this process, the more uncertainty markets will face, and the more investors may decide to seek out less risky options for their portfolios (see my recent chartbook for an illustration of which asset classes outperformed and underperformed during the 2011 debt ceiling debate).

Remember, the 2011 debt ceiling standoff led to S&P downgrading the federal government’s credit rating for the first time in the government’s history. That happened four days after Congress voted in favor of a debt ceiling increase. The market’s reaction to an actual default would be much worse.

I don’t expect this standoff to end in default, however. And as I illustrated in a previous blog, while US equities declined during the debt ceiling standoffs of 2011 and 2013, they posted substantial returns in the 12 months following their resolution. As of today, there’s time to avoid the worst-case scenario, and brighter days could follow.

当資料ご利用上のご注意

当資料は情報提供を目的として、インベスコ・アセット・マネジメント株式会社（以下、「当社」）のグループに属する運用プロフェッショナルが英文で作成したものであり、法令に基づく開示書類でも金融商品取引契約の締結の勧誘資料でもありません。内容には正確を期していますが、必ずしも完全性を当社が保証するものではありません。また、当資料は信頼できる情報に基づいて作成されたものですが、その情報の確実性あるいは完結性を表明するものではありません。当資料に記載されている内容は既に変更されている場合があり、また、予告なく変更される場合があります。当資料には将来の市場の見通し等に関する記述が含まれている場合がありますが、それらは資料作成時における作成者の見解であり、将来の動向や成果を保証するものではありません。また、当資料に示す見解は、インベスコの他の運用チームの見解と異なる場合があります。過去のパフォーマンスや動向は将来の収益や成果を保証するものではありません。当社の事前の承認なく、当資料の一部または全部を使用、複製、転用、配布等することを禁じます。

IM2023-020

そのほかの投資関連情報はこちらをご覧ください。https://www.invesco.com/jp/ja/institutional/insights.html