NEW YORK (Reuters) – U.S. President Joe Biden and Congressional Republican Kevin McCarthy have reached a tentative deal to raise the federal government’s debt ceiling to $31.4 trillion, ending a months-long standoff, two sources close to the negotiations said on Saturday.
But the deal is still struggling to pass through Congress before the United States runs out of money to pay its debts in early June.
THIERRY WIZMAN, GLOBAL FX AND INTEREST RATES STRATEGIST, MACQUARIE GROUP, NEW YORK
“There is definitely going to be some relief in fixed income markets. Where there was the most distortion from uncertainty was in credit markets and in the treasury market… I believe that on Tuesday, when the market reopens in the United States, we should see both of these distortions corrected.
“But what it doesn’t solve is that all along the Treasury curve, yields have been rising recently. And I think they’ve been rising in anticipation that there will be a lot of Treasury bill issues. Treasuries, notes and notes in the next few weeks because the US Treasury needs to replenish its liquidity.And so, I think Treasury bond yields will remain high for some time as supply is absorbed.
“And I think stocks can do well here. It was definitely an overhang in the stock market.
“As for the dollar, I’m inclined to think it might strengthen the dollar a bit because it would weaken the de-dollarization argument. But not by much just a little more, because the dollar has already strengthened a bit in the last few weeks.”
AMO SAHOTA, DIRECTOR, KLARITYFX, SAN FRANCISCO
“It will be pretty good for the market. I think it will keep expectations still pretty warm with the performance of the Nasdaq. It will be good for stocks.
“I think it might also give the Fed more reason to feel confident about trying to raise rates again. I think the market might actually seize the opportunity to price in a bit more in June, if he thinks everything else being on par, the economy is still quite buoyant – we can see that.The recovery in the tech sector in particular.Spending has also been quite robust.
“I think it’s holding the dollar up pretty well as well. I think, in general, everyone should be pretty happy with that, although we want to see what the color of the deal looks like. Initially it looks like it’s coming from more cuts on the right, which is really what the Republicans were pushing.
“And it’s going to be important to see how long the deal lasts, whether…we’re going to face those same issues again. Or whether those issues are also going to be resolved with a long-term deal. I really doubt that’s a long-term agreement.”
(Reporting by Laura Matthews; compiled by the Global Finance & Markets Breaking News team; editing by Kim Coghill)