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US dodges default. What’s next?
Now that a default crisis in the US has been averted, we look at how this resolution could move short-term US yields in the near term, and the opportunities that await investors.
By Patty Membrebe and Geraldine Wambangco
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After months of soured risk sentiment due to heightened uncertainty surrounding the recent debt ceiling impasse, investors now cheer the Senate approval of a deal that will steer the US away from another grave risk of default until January 2025.
At the height of the political gridlock, the yield on the US T-bill maturing on June 6 peaked at 6.79%–much higher than the later-dated bill maturing on July 27, which hovered at 5.17% on the same day. This is as investors grew reluctant to hold bills dated near the June 5 deadline, lest the US fail to come to an agreement on time.
Since the bipartisan deal passed the US House of Representatives, the pricing distortion in the US T-bill yield curve corrected (Chart 1).
Now that the hardest hurdle is over, our regular investors ask: Do we expect an