History repeats itself

Question: What's happening with the debt ceiling?

Deborah Cunningham: We are working under what are called extraordinary circumstances right now, by Chair Yellen, and ultimately, that means we are close to overreaching our debt ceiling limit, from a US Treasury perspective. Given that most of the high quality short-term securities in the marketplace are superseded, if you will, from a quality perspective at the top of the echelon by Treasury bills, this is a concern, because that's the sector that this impacts. Having said that, there's a lot of information that's out there from historic times. This is not the first show with this type of an issue in the marketplace. There have been technical issues that have arisen, there have been debt ceiling suspensions, extraordinary measures, debt ceiling extensions, all those things have taken place in the past. The market tries to find a date that is likely to be the X date when Treasury would run out of these extraordinary measures, and then have to go into some other type of mode in order to continue to fund the government, and that right now, is sometime in the third quarter, July, August, September timeframe. Those Treasury securities in that sector are yielding higher right now, and that's a market response that has occurred every other time this has happened in US history. Ultimately, the result should be that Treasury gets its act together, that Congress passes a debt ceiling increase, and we have another two or three years in which we can operate within that, without the extraordinary measures. Money market funds have a lot of different options. We buy different types of securities, even from a Treasury only perspective, we avoid generally the dates that are in question, and ultimately, there are processes in place from an industry perspective that would allow Treasury options of kind of technical defaults. It's never happened, we don't expect it to happen, but there has been a lot of study around this from a market participation perspective, as well as from various Treasury groups themselves, to make sure that the US can continue to function, its debt can be serviced, and money market funds that hold this debt have no issue with liquidity pricing, stress testing, in the process of holding those securities. So, we would expect history to repeat itself. There's always a few diversions along the way of getting to that good end result.