How to Lose a Little Less Sleep Over the Debt Limit
Who would have ever thought the debt ceiling limit would become a dinner-table topic? In the past, Congress routinely voted to approve higher limits on debt covering the spending it had already authorized, and hardly anyone noticed. But in 2011, the debt-ceiling vote became a political football, with authorization tied to contentious debates about limits on future spending. Since then, the specter of government default has made each debt-ceiling vote big news, with the surprise deal between President Trump and the Democrats the latest chapter in the saga.
For institutional cash investors, it’s more than just a political spectacle. Uncertainty about the government’s commitment to payments on T-bills and other debt strikes at the heart of the biggest investment many have made. More than a trillion additional dollars have flowed into Treasuries and government money market funds since the SEC passed rules doing away with stable net asset values in the old prime money market funds. Treasury professionals are now mindful of the prospect of a government default before Congress approves the next debt limit increase.
Our research report this month, The Debt Limit with Complications from Money Market Funds, is a deep dive into the market dynamics of debt-ceiling brinksmanship. It provides practical advice on ways to monitor your Treasuries and government funds more closely and reduce exposure to a possible future government default. With the next debt-ceiling vote looming three months from now, it may help anxious cash managers sleep just a little better at night.