Dow advanced 351, advancers over decliners 2-1 & NAZ gained 228. The MLP index was steady in the 223s & the REIT index added 2+ to the 352s. Junk bond funds crawled higher & Treasuries had only limited selling, bringing slightly higher yields. Oil went up to the 72s & gold was off 2 to 1941.
AMJ (Alerian MLP Index tracking fund)
The Treasury Dept announced that auctions for certain short-term Treasury bills will go ahead next week. And some observers have interpreted that as a sign lawmakers may have some additional time beyond the Jun 1 deadline to finalize a deal to raise the debt limit & avert a catastrophic default. Treasury Secretary Janet Yellen & lawmakers in Congress have been pressing to get a deal to raise the debt limit by Jun 1, which has been cited as the earliest possible date at which the Treasury may exhaust the "extraordinary measures" it has been using to pay the gov bills since the $31.4T debt limit was reached in Jan. The Treasury's Bureau of Fiscal Management announced auctions for 3-month & 6-month Treasury bills that will be held Tues, which will formally settle Jun 1 & a $50B cash management bill that matures in Nov. Typically, the Treasury wouldn't move ahead with the auctions unless it’s certain it has the necessary headroom under the debt ceiling. Gennadiy Goldberg, a senior rates strategist, said the announcements "suggest that the Treasury probably has cash to settle the security. They have suggested in the past that they would not announce auctions that they did not believe they had the means to settle." Secretary Yellen doubled down this week on the need to resolve the debt ceiling impasse as early as possible before the Treasury exhausts its extraordinary measures & emphasized that Jun 1 is the date at which funds may be running out. "It’s highly likely that we would run out of resources to meet all the government’s obligations in early June and possibly as early as June 1," Yellen said. "We no longer see very much likelihood that our resources will enable us to get to the middle or end of June." Yellen added that the Treasury is trying to update Congress with more precision about the X-date when the gov can no longer pay its bills but noted, "It’s hard to be precise about exactly which day we will run out of resources." Uncertainty around the Treasury's daily cash balances stems from day-to-day fluctuations in tax revenue collections & payments coming due. The Treasury has been in communication with various federal agencies about larger payments that may come due in late May or Jun to help improve its forecast, but X-date forecasts from outside the gov have also warned about a heightened risk of breaching the debt limit in early Jun.
Treasury auction signals possible leeway on June 1 debt ceiling deadline
Traders are ratcheting up the odds that the Federal
Reserve lifts interest rates for the 11th straight time in Jun amid
ongoing signs of inflationary pressures in the US economy. Traders
are now pricing in a 52.8% chance of another qtr-percentage point
increase during the Fed's Jun 13-14 meeting — a significant rise from
just one day ago, when 36.4% projected another hike, according to the
CME Group's FedWatch tool. The jump came one day after minutes
from the Fed's May meeting indicated that central bank officials are
divided on whether additional interest rate hikes are needed to lower
chronically high inflation. "Several participants noted that if the economy evolved along the
lines of their current outlooks, then further policy firming after this
meeting may not be necessary," minutes from the central bank's May 2-3 meeting said. At
the same time, "some" policymakers noted that chronic inflation means
"additional policy firming would likely be warranted at future
meetings." In Fed vernacular, "several" typically implies more than
"some." Despite
the division over future rate hikes, officials unanimously agreed at
the meeting to lift the federal funds rate for the 10th straight time to 5.00-5.25%, the highest since 2007. Policymakers also removed a key phrase from its post-meeting
statement that indicated "additional policy firming may be appropriate"
at coming meetings & stressed they will rely on economic data releases
for any future policy shifts. "Participants generally expressed
uncertainty about how much more policy tightening may be appropriate,"
the minutes said. "Many participants focused on the need to retain
optionality after this meeting." Although inflation has eased
from a peak of 9.1%, it remains about more than double the pre-pandemic
average & well above the Fed's 2% target rate. On top of that, the
labor market remains uncomfortably tight, with unemployment recently
falling to 3.4%, the lowest rate since 1969, despite the slew of rate
increases & ongoing strains within the banking sector.
Another Fed rate hike could be in play during June meeting
Urgent talks to raise the US debt ceiling appeared to move closer to a deal, with only 6 days to go before the US faces an imminent threat of debt default. But negotiators warned that the final phase of talks would likely be the most delicate & difficult for both sides. “We’re at a sensitive phase, with sensitive issues that remain. Those sensitive issues are the thorniest issues that we’ve been discussing,” Rep negotiator Rep Patrick McHenry told reporters. “Everybody’s trying to do a fine job of figuring out the finer details of this, but nothing’s done.” “They’ve got work in the White House, we have work here in the Capitol. I don’t know about us physically being together, but there’s alignment on the set of things that we need to work on,” said McHenry. At the White House, Pres Biden sounded a cautiously optimistic note. “The only way to move forward is with a bipartisan agreement, and I believe we’ll come to an agreement that allows us to move forward and protects the hardworking Americans of this country,” he said. House Speaker Kevin McCarthy said he did not know when a deal would be reached. “We’ve already talked to the White House today, we’ll continue to work,” he said. “They’re working on numbers, we’re working on numbers and we’ll work together.” One influential Rep said he was optimistic about reaching a deal before the holiday weekend. Rep Kevin Hern, who chairs the 156-member Rep Study Committee, said that he believed it was “likely” a deal would be reached by today. “We are inching closer to a deal. I think it’s some of the finer points they are working on right now,” Hern said. “You are likely to see a deal by today.”
Debt ceiling talks enter crunch time as negotiators get closer to a deal
Traders are optimistic about those guys in DC will agree on a debt ceiling bill. So they are buying stocks today. What else is there to say?
Dow Jones Industrials
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