Good Tuesday AM,

Not much news today but that isn’t stopping most asset classes from leaking.

The 10-yr is aback to 3.53% and mortgage bonds have given up the last week’s gains. There is a little Fed Speak but mostly, markets are focused on two things.

• Today’s meeting at the White House regarding the debt ceiling standoff. I doubt there will be an agreement today as there is too much time before we run out of money. Congress tends to not act but to react once it becomes catastrophic. Fix it when it’s broken is not a great sustainable plan, but it is the one we seemingly accept.
• Tomorrow’s CPI reading.

I expect CPI to come in tame and if it does along with no deal on the debt ceiling, rates could improve quite a bit as those would be complimentary forces. I hate to share that negative economic news is good for interest rates, but it is often the case. I did a query on Chat GPT about the effect of a debt ceiling breach and below was the AI response. It’s a really good response. I am impressed although I suspect the selloff will be in equities first.

The debt ceiling is the limit on the amount of money that the US government can borrow to fund its operations and pay its bills. If the debt ceiling is not raised, it could have serious consequences for the US economy and financial system.

Firstly, without an increase in the debt ceiling, the US government will not be able to borrow more money to pay its bills. This means that it may not be able to meet its obligations to pay Social Security and Medicare benefits, military salaries, or interest on its existing debt. This could lead to a default on its debt obligations, which would damage the US credit rating and cause financial turmoil.

Secondly, a failure to raise the debt ceiling could cause interest rates to rise, which would increase the cost of borrowing for everyone from individuals to businesses. This could lead to a slowdown in economic growth and a rise in unemployment.

Thirdly, the US dollar could weaken in value, which could cause inflation to rise and reduce the purchasing power of consumers.

Overall, the impact of not raising the debt ceiling would be severe and far-reaching, potentially leading to a recession or even a financial crisis.

Please remain safe and stay healthy, make today great!!!