Investors on Wall Street are bracing for the prospect of a protracted, costly standoff in Washington over the debt ceiling, underscoring the economic risks as House Republicans prepare to vote on new legislation as soon as Wednesday.
In recent weeks, two key developments — including a drop in yields on government bonds set to mature imminently — have suggested a growing panic that the GOP’s demands could cause the country to default, touching off what analysts widely believe would be another U.S. recession.
Some moderate Republicans, including Rep. Nancy Mace , have signaled early unease that the GOP plan could hurt their districts, particularly by rolling back tax credits to boost solar energy. Conservatives, meanwhile, have demanded that McCarthy and other Republican leaders commit to holding their ground and resisting any changes that weaken the bill in the Senate, where Democrats say they’ll refuse to consider the GOP legislation.
But the precarious political environment has not been lost on Wall Street, where investors began to raise alarms shortly after McCarthy’s speech. The primary source of their concern was federal tax collections: In the days before 2022 returns were due, analysts began to notice that tax receipts had come in lower than anticipated.
“We think that non-withheld tax receipts so far still lean slightly in favor of a late July deadline, but it would take only a few days of slightly weaker tax collections to tip the deadline to early June,” the analysts at Goldman Sachs wrote in their April 19 note.In response, investors have started to shift their behavior. Some have avoided Treasury bills — bonds issued by the federal government — that mature around the likely debt ceiling deadline. In its own note last week, analysts at J.P.
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