August eyed for U.S debt-ceiling deadline

NEW YORK • The U.S. debt ceiling won’t be reinstated until March and the Treasury will likely find ways to extend funding for some months after that, yet Wall Street analysts are already crunching numbers to determine just when the government’s borrowing authority will finally be exhausted.

Once the debt limit suspension ends on March 1, Treasury Secretary Steven Mnuchin is expected to once again deploy extraordinary funding measures to keep the cash spigot open for as long as possible. In addition to figuring out how much headroom that will create, uncertainties about the volume of April tax receipts also complicate the calculation, but strategists at both Royal Bank of Canada and Bank of America are tentatively pencilling in some time in August for the government’s so-called drop-dead date.

Michael Cloherty, a Newyork based strategist at RBC, said in a note published on Tuesday that the Treasury may even be able to defer the deadline to mid-september, though there will be “very little confidence in that forecast until the April tax season is complete.”

Bank of America strategists Mark Cabana and Olivia Lima said the ongoing shutdown of the federal government raises the risks of a challenging fight in Washington around the debt limit.

A prolonged standoff over the borrowing cap will lead to volatility in U.S. money markets, they said in a note Wednesday. This will stem first from swings of around Us$100-billion in Treasury bill supply leading into and out of the March reinstatement. It will then be followed by a surge in bill supply after the debt ceiling issue is resolved to allow for a “sharp rebuilding” of the government’s cash balance, they wrote. Fitch Ratings has noted that the debt-limit issue is a risk factor for the U.S.’S triple-a credit score, but said it wouldn’t review the rating until the “x-date,” when extraordinary measures may be exhausted.