As technical default nears, Congressional leaders and the President continue to negotiate.

While our base case continues to be that the U.S. Congress will reach a resolution on the national debt ceiling before the government hits technical default (the “X date”), the risks of partial resolution—or no resolution at all—have increased. Ongoing meetings continue between Congressional leaders and President Biden to resolve the debt issue before the Treasury runs its cash balance to zero. Treasury Secretary Janet Yellen estimates this date to be June 1, and while the Treasury ...

The market is beginning to price uncertainty as to the timing and resolution of U.S. technical default risks.

On January 19, the U.S. hit its $31.38 trillion statutory debt limit, and Treasury Secretary Yellen sent a letter to Congress that formally began a “debt issuance suspension period” (DISP), during which the Treasury would utilize extraordinary measures to operate on a day-to-day basis. The letter originally set the exhaustion of these measures as June 5—a conservative estimate based on projections of both outflows and, more importantly, the uncertainty of tax receipts.

Inflation is on a downward trajectory but will take time to return to target.

Last week’s U.S. Consumer Price Index (CPI) reading was in line with consensus expectations for January, with headline CPI increasing 0.5% month-over-month (MoM) and 6.4% year-over-year (YoY). Core inflation rose 0.4% MoM and 5.6% YoY. In the non-core categories, the headline number was boosted by both food and energy, which rose 0.5% and 2.0% MoM, respectively. Within the core components, goods were up by a modest 0.07% MoM while services increased 0.55% MoM.

While printing near forecaster expectations, the...