After The Stop-In: Markets Face New Risks If D.C. Deal Done

Needless to say, under-positioned discretionary investor cohorts were in an uncomfortable position this week. On the eve of what all but the most tortured, pessimistic souls assumed would be a budget deal in D.C., equities were near the top of the range they've plied for months, and looked poised to break out. More colloquially, 2023's narrow, tech-driven rally was threatening to escape the lab. That made "FOMO" a fixture of the daily market banter. The discomfort among those still offsides an

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5 thoughts on “After The Stop-In: Markets Face New Risks If D.C. Deal Done

  1. Would a deluge of T-bill issuance push government money market rates up even further relative to the rates on offer from your friendly neighborhood bank?

    1. 1 mo bills already yield materially more than RRP, seems MMFs could swap from RRP to bills. If so, could mitigate the net liquidity drain, to the extent money is just going from one liquidity drain to another.

      1. FWIW from JPM on that: “The likely outcome is that MMFs will buy bills on the margin, but as bills revert to more typical levels, the relative economics will likely shift back in favor of the RRP.” RRP balance should be “relatively unaffected.” Marginal buyers of bills will be those without RRP access (in their opinion).

  2. All that said, I’m kind of surprised the parties seem on track to reach a debt ceiling resolution so quickly (IF they in fact do, that is). In prior standoffs, the Dem President and Rep Congress “went to the mat” and started shutting the federal govt down.

    1. I wouldn’t be shocked if Dems gave McCarthy some air cover to remain speaker of the house in exchange for a deal. I don’t think any sane Republicans view a default as a winning political position. Have a few blue dog democrats vote to keep McCarthy as speaker and remove the part that any representative can trigger a vote for a new speaker and we can move on from this charade and neuter Gaetz and MTG. It’s not like McCarthy needs their votes for anything important anyway. Whatever they managed to pass would be DOA in the Senate.

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