The longer the debt-ceiling debate goes unresolved, the more pressure that risks building in credit markets.
“Congress and President Biden have only a handful of scheduled days in session to come to an agreement to raise or suspend the debt limit,” CreditSights analysts led by global head of strategy Winnie Cisar said in a note Tuesday. President Biden met with lawmakers on Tuesday to discuss the debt ceiling.
High-yield bond spreads are “the most susceptible” to debt-ceiling-related pressure, they said, estimating that spreads on junk bonds rated CCC are at risk of widening toward 1,500 basis points, as they did in September 2011. Bonds rated below BBB by S&P are below investment-grade. The chart below shows the amount of movement in basis points for high-yield-bond spreads in the months and weeks before the 2011 debt-ceiling resolution versus so far in 2023, including based on the debt’s ratings and maturities.
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