Investors relieved after US House votes to suspend debt ceiling; focus
turns to Senate
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[June 01, 2023] By
Caroline Valetkevitch
(Reuters) - Investors gave a muted welcome to the U.S. House of
Representatives passing a bill that would suspend the government's
borrowing limit and avert default, with market focus now turning to the
Senate and the interest rate outlook.
Asian markets were trading higher when the bill cleared the house and
held their gains. Investors nudged S&P 500 futures from slightly
negative back to flat. Treasury yields rose marginally.
The Republican-controlled House voted 314-117 to send the legislation to
the Senate, which must enact the measure and get it to President Joe
Biden's desk before a Monday deadline, when the federal government is
expected to run out of money.
"This has gone through with a very big majority, so there's enough
bipartisan support that it's very hard to believe this isn't going to be
even more of a formality in the Senate," said National Australia Bank
head of currency strategy, Ray Attrill.
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"What it does is turns the attention to the incoming data and the Fed
meeting this month. It obviously removes one potential obstacle to the
Fed moving this month." The bill would suspend the federal government's
borrowing limit until 2025, allowing the Treasury to sell debt to pay
its obligations. Two-year Treasury yields rose 2.7 basis points to
4.417%, while currency markets were broadly steady.
Investors are widely expecting the deal to get passed, but it could go
right down to the wire. Senate consideration of the bill could take most
of a week, and it would need to pass the bill without changes, otherwise
it must return to the House.
A passed bill would then go to the White House for Biden to sign into
law.
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The Wall Street entrance to the New York
Stock Exchange (NYSE) is seen in New York City, U.S., November 15,
2022. REUTERS/Brendan McDermid
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If the deal passes, "it would take this issue off the table for the
next couple of years and could be a tailwind for markets in June,"
wrote Brad McMillan, chief investment officer for Commonwealth
Financial Network, in a Wednesday note.
The S&P 500 closed down 0.6% on Wednesday in a decline some analysts
pinned partly on remaining uncertainty over the vote. The index is
up nearly 8.9% year-to-date and trading near its highest levels
since August 2022.
Debt ceiling concerns periodically weighed on stock markets over the
last week, although most investors expected an 11th-hour agreement.
Worries have been more apparent in the Treasury market, where some
investors had for weeks avoided maturities coinciding with a
possible default.
Investors have viewed the possibility of a U.S. default as an
unlikely but potentially catastrophic event for global markets.
"Markets have taken the good news," said Jarrod Kerr, chief
economist at Kiwibank. "We've seen a muted reaction... I think focus
is back on Fed policy. There are still risks, but I do think that a
deal will be done and things will calm down."
(Reporting by Caroline Valetkevitch. Additional reporting by Kevin
Buckland in Tokyo and Rae Wee in Singapore; Writing by Ira
Iosebashvili; Editing by David Gregorio and Lincoln Feast.)
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