Equity
% return in C$
Canada: MSCI Canada;
U.S.: MSCI USA;
International markets: MSCI EAFE;
Emerging markets: MSCI Emerging
Markets. Source: Morningstar Direct
Fixed income and currency
% return in C$
Canada investment grade: Bloomberg
Barclays Canada Aggregate;
Global investment grade: Bloomberg
Barclays Global Aggregate;
U.S. high yield: Bloomberg Barclays
U.S. High Yield. Source: Morningstar Direct.
Eyes on the U.S. debt ceiling debate
The U.S. Treasury Department is reaching its debt limit
of US$28.4 trillion, a maximum amount set by law that
the government is authorized to borrow to finance its
operations. Treasury Secretary Janet Yellen has
indicated that if the debt ceiling is not raised or if
another suspension is not granted, the government will
likely run out of cash by mid-October. Government
payments would cease, which could include a default on
government bond payments that are coming due and an
inability to meet an approaching ~$20B payments to
social security recipients. Addressing the debt ceiling
has been complicated by other issues, such as the $3.5T
reconciliation spending package and the infrastructure
bill.
This debate has major implications for the American
economy and the wider market. A possible U.S sovereign
default would impact credit markets, triggering a credit
ratings downgrade, sending interest rates higher and
ultimately stifling the prospects of the U.S. economic
recovery while pressuring equity prices. In 2011, when
similar political brinkmanship was heated and Treasury
debt lost its AAA rating from Standard & Poor’s, 5-year
credit default swap spreads spiked 65 basis points on
Treasuries. We expect that Congress will likely come to
a decision within the final hours before the U.S. runs
out of cash, as it is highly unlikely that the
government will further add to its existing economic
challenges with a debt default.
U.S. debt ceiling has risen historically, increasingly
following periods of suspension
Source: U.S. Department of Treasury, Bloomberg. As of
September 30, 2021.