US: Debt ceiling liquidity bail-out coming up – Nordea Markets

In view of analysts at Nordea Markets, markets may have rallied on the anticipated upcoming “liquidity bailout” stemming from the debt ceiling deadline of 1 March for the US economy.

Key Quotes

“Over the next four to five weeks, the US treasury is legally bound to bring down the cash balance at the Fed, as they cannot hold an “above normal” liquidity buffer ahead of the expiration of the debt ceiling suspension.”

“The commercial banking system will be on the receiving end of this USD liquidity, which should be temporarily positive for risk appetite.”

“By how much and for how long this liquidity bailout will be in place is ultimately up to Steven Mnuchin and his team in the US treasury, but at least four to six weeks of further liquidity easing are likely on the cards (the cash balance will not increase again unless politicians lift the debt ceiling), especially given the deadlocked political situation in the US with the ongoing partial government shutdown.”