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Two ‘Major’ Risks From A D.C. Debt Ceiling Deal
A debt ceiling deal in D.C. would be good news, right?
Yes. Yes, it would. Unequivocally. Because a voluntary US default would be bad news. Unequivocally.
However, there are two potential unintended consequences, one of which got a test screening (if you will) on Wednesday, when US equities rallied hard in part because Kevin McCarthy said a deal is now "doable."
"If we do get a debt ceiling deal, and then we do get the big risk prem / hedge unwind which then slingshots a bunch of shock market
Seems to me bond sell-off and equity rallies already happening in anticipation of deal. Therefore, sell equities on deal announcement and buy bonds.