Fiscal squabbles may trigger short-term volatility in US yields

In Short

Over the next weeks, the outlook for the US fiscal policy will come again to the fore. The discussion over the size and shape of the ambitious fiscal plan aimed at reforming in-depth the welfare system and accelerate the green transition will overlap with the more prosaic need to tackle the problem of the federal debt ceiling.


  • Two important deadlines loom for fiscal policy in the US: on September 30, the fiscal year ends and Democrats and Republicans must find an agreement to extend the funding of federal activity and avoid a shutdown. Sometime in the first half of October, if the debt ceiling is not adjusted or suspended, the Treasury will run out of cash.
  • A temporary, and overall painless for the economy, shutdown is possible. A default on debt as the ceiling is not lifted appears extremely unlikely, but the Democratic majority will have to find a compromise, either within its representatives or with the Republicans.
  • Either way this is likely to entail a sizeable watering down of the ambitious US$ 3.5bn package aimed at overhauling the welfare system and speed up the green transition of the economy. The US$ 1.2tn bipartisan deal on infrastructure may at worst be delayed.
  • Even without a catastrophic ending, past experience shows that market volatility increases in the runup to the fiscal deadlines, especially for Treasuries and T-bills. This may be happen by the first half of October.

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Fiscal squabbles may trigger short-term volatility in US yields

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