The debt ceiling crisis is over now that the bill has been signed into law, but investors are still dealing with the aftermath. There are opportunities — but also potential minefields to avoid — after the debt ceiling is raised, such as an influx of Treasuries, some analysts say. Here’s what they say. Risk assets Paul Gambles, managing partner of MBMG Family Office Group, said he expects “risk assets and risk currencies to recover briefly” after the debt ceiling agreement, but added that it creates “wallet-level” challenges. “While data patterns have been interrupted by the policy-driven economic and market disruptions of recent years in particular, it is unclear whether the roller coaster ride will continue and whether the correlation between assets will continue. to render traditional diversification meaningless,” he said. added. Gambles said the debt ceiling fiasco was the “latest iteration” in a series of systemic missteps by the U.S. Federal Reserve and Treasury Department, citing aggressive post-pandemic asset purchase programs that have contributed to the country’s persistent inflation. For now, he said the near-term outlook for risk assets will be “very fragile.” Investors should also expect “massive volatility” in US Treasuries in the near term after the deal, given that the Treasury is to issue a significant tranche of those bonds, Gambles warned. In a June 4 report, Citi said it expects a net increase of about $400 billion in short-term U.S. Treasuries issuance, most of it in the form of short-term Treasuries. term. “Such a large supply of ‘risk-free’ high-yield Treasury bills is competition for assets from investors of all kinds,” Citi said, adding that with six-month bills now yielding nearly 5.5% , the bulk of borrowing will initially be concentrated in the most profitable and least risky Treasury bonds. “This is more likely than not to effectively tighten financial conditions over the period ahead,” he concluded, adding that other markets are likely to perform poorly “for some time.” ‘Biggest Beneficiaries’ Probably the ‘biggest beneficiaries’ of today’s market are gold miners and long-duration Treasuries, Gambles said, adding, “That’s where we’re really going to see the rises in price.” He said the Japanese yen is also a buy. “If you still think the US policymakers have it all covered, and this is the first time they’re going to be able to stage a soft landing, I think those are providing some wallet insurance,” he said. he told CNBC. “If you think there is a high risk of them being wrong, then the best sectors to be in [are] Citi, meanwhile, said opportunities could emerge in non-U.S. debt — particularly high-yield, investment-grade emerging-market bonds. US banks However, Citi analysts have also warned that there is potential for higher Treasury yields to siphon off deposits from weaker US banks.” A shift from bank deposits to US Treasuries is not necessarily expected to result in new bank failures, but systemic risk for banks could rise further despite regional banks rising 4.8% this week,” Citi said. vulnerable, especially those whose portfolios contain a high percentage of commercial real estate loans.Small and mid-cap stocks Citi noted that small-cap stocks are linked to the performance of regional banks.However, the bank said they could recover once regional bank stocks improve as economic conditions stabilize. “Although it is perhaps a little premature to add [small and mid cap shares] during the Treasury bond boom, quality small-cap value stocks look compelling at current levels with a multi-year time horizon,” the bank said, adding that profitable small-cap names are now trading at a 26% discount. % compared to their larger counterparts. “In 2024, when the Fed pivots, we also expect a catch-up in small-cap growth stocks, led by non-cyclical healthcare and technology companies. Remember that “bearish investors” have a record amount of money set aside to put to work,” Citi added.
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