Concern over Debt Ceiling

Could the US really default?

The concern over congress not raising the Debt Ceiling is showing up in the derivatives market. Credit Default Swap cost are up 150bps. This is higher than in December 2022 and 2011 during the concerns of the Debt Ceiling not being raised.

Below is a chart provided but Hedgeye.com mapping out the cost of 1yr US Sovereign Credit Default Swaps. CDS are used as insurance to protect positions. They where made popular during the Great Financial crisis.

The concern over the economy, inflation is showing up in the Treasury market. 10yr Treasury Yields continue to fall. This morning 10yr yield is at 3.36% and the 2yr is at 3.83%. The result is the Yield Curve at -0.47.

PPI

Wholesale prices in the US rose less than expected in April, with the producer price index increasing by 0.2% compared to a predicted 0.3%. Excluding food and energy, core PPI also rose 0.2%, in line with expectations. The slowdown in price increases indicates a potential trend towards lower inflation.

On an annual basis, headline PPI rose 2.3%, down from 2.7% in March. Meanwhile, jobless claims for the week ended May 6 rose to 264,000, an increase of 22,000 from the previous period.

Conclusion

I have been studying a lot about Mega MACRO Cycles. What I believe we are finding ourselves in today is one of those cycle changes. Fueled by over use of credit, war / geopolitical turmoil and social unrest. We’ve been here before. The question is, will we learn from the past or blindly wonder into the abyss?