Your Guide to the Debt Ceiling

The bottom line

Markets might be volatile as Congressional leaders debate raising the debt ceiling, but we believe Congress will ultimately reach an agreement to avoid a U.S. default. We are staying invested, with a preference for higher quality stocks and bonds.

What’s happening?

The U.S. Treasury says the extraordinary measures that are currently funding the government could be exhausted by early June if Congressional leaders are unable to agree on a plan to raise the nation’s borrowing limit, known as the “debt ceiling.”

Markets at a glance:

Republicans and the White House remain opposed on the debt ceiling issue and may not come to an agreement until financial market jitters put enough pressure on both sides to compromise.
Volatility in U.S. Treasury bills reflects some nervousness, but so far, broader markets have not reacted much.
Avoid trying to time the markets. Stay invested via high quality stocks and bonds that may be able to better navigate near term volatility.

What assets are at risk?

The securities most at risk are short dated Treasury bills due to mature around the time the debt ceiling is reached. We expect all T-bill holders will be paid, even if, in a worst case scenario, they are paid a few days late.

Market performance around previous debt ceiling stand offs

While we may see some near term volatility in markets, both stocks and bonds delivered positive returns following prior debt ceiling resolutions.

Stay the course

Don’t let uncertainty scare you out of the markets. We are navigating market stress with an eye toward capitalizing on opportunities while managing risk.

Bond positioning

We have generally maintained a more defensive portfolio positioning as a result of inflation uncertainty and the risk of recession. The debt ceiling standoff only adds to these concerns, bolstering our resolve in these defensive positions. We are limiting exposure to maturities in the next few months that could be exposed to downside risks, and increasing exposure to longer term bonds that can help offset stock market risk.

Stock positioning

We prefer quality companies that are able to weather volatile markets, and believe staying invested in these companies continues to make sense.

This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular.