Debt Ceiling Debate Should Heat Up

Remember how annoying it was last year when we had all of the back and forth squabbling about the debt ceiling debate?  It also contributed to the US having their debt rating questioned, as it shows dysfunction in the govt. 

But we should probably get ready for another round of it.  Treasury Sec. Lew said that the debt limit will be reached October 17th.  So the rhetoric and gamesmanship is set to heat up and that will likely mean additional volatility for the market.

Speaking of volatility, right now the VIX is still very low at just below 14.  But as we get into this debt ceiling debate I would not be surprised to see another spike back above 15.

In economic news, durable goods were disappointing at 0.1%, even if that is up from last month's big decline of -8.1%.  New home sales were again strong at a rate of 421,000 in August, which was up from 390,000 in July.

Asian markets ended mixed.  Short-term SHIBOR rates rose again in China, with the 2-week rate rising another 38 bps to 5.18%.  Europe's markets trade near their lows.  The CEO of Greece's Piraeus Bank told CNBC that non-performing loans are on the rise and that the bank will need additional loss provisions this quarter.

The 10-year yield is down slightly to 2.64%.  That's a pretty far cry from those who were looking for 3.25% just a couple weeks ago.

Oil and gold prices are higher today with oil up a bit to $103.35 and gold prices rising to $1332.

Trading comment: The recent 4-day pullback has been fairly shallow, but we continue to use it as an opportunity to add to the equity side of portfolios.  We are also adding to our interest rate hedges, as bond yields have come down a lot since the 'no taper' decision by the Fed, but with the economy improving we think its just a matter of time before we finally see the 10-year yield climb back above the 3.0% level.