Stocks risk slumping in the debt-ceiling showdown, but investors probably will still want long-term Treasurys if 2011’s battle over the U.S. borrowing limit is any guide, according to Sevens Report Research.
The U.S. is potentially just three weeks away from bumping up against its borrowing limit, which would prevent the Treasury Department from selling additional Treasury debt, according to the note. That’s a problem because the U.S. government funds its day-to-day operations through regular sales of Treasurys, Essaye explained.
In 2011, the yield on the 10-year Treasury note fell in the runup to the U.S. coming up against its borrowing limit, according to the report. When investors pile into Treasurys, prices of the debt rise while yields fall. Read: Stanley Druckenmiller warns of U.S. hard landing at Sohn conference, says debt-ceiling debate ‘really depressing’
What about stocks? As for the stock market, equities don’t fare well following debt-ceiling “dramas,” even if the issue is finally “resolved at the last minute,” according to the report.
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