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The $36.1 trillion US debt limit was hit on Tuesday, prompting the Treasury to use extraordinary financing measures.
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Suspending debt issuance through March 14 could suppress bond yields and help stocks.
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Meanwhile, a protracted debt ceiling debate could lead to a possible grid shutdown.
Trump's trade may be boosting stocks in the early days of the new presidential administration, but there is a tailwind coming from the bond market that could keep the rally going in the coming months.
According to a letter to Congress from Treasury Secretary Janet Yellen, the $36.1 trillion debt ceiling was hit on Tuesday.
That has left the Treasury Department to rely on “extraordinary measures” to avoid the threat of a technical default. Some of those measures include the Treasury Department delaying payments to certain government accounts, such as the Postal Service Retiree Health Benefits Fund, to meet more pressing obligations.
This also means that the Treasury Department has suspended debt issuance through March 14, 2025, when the debt ceiling limit is expected to be addressed in a government funding bill.
According to Lawrence Gillum, chief fixed income strategist at LPL Financial, the Treasury's suspension of issuing new debt is a silver lining for stock investors who have recently been spooked by rising yields.
“This suspension period could provide some well-needed (albeit temporary) relief from supply/demand concerns that have helped push Treasury yields higher recently,” Gillum said in a recent note.
Recent Treasury auctions have triggered jumps in bond yields, as investors grow increasingly concerned about the US government's debt limit and debt-fueled deficit spending.
“We already have discussions literally every day when we have the Treasury auction around, 'Hey what were the metrics on the auctions and what do these numbers tell us in terms of the overall fiscal sustainability,' Jay Powell always keeps pointing It's already unsustainable, “Torsten Slok, economist at Apollo, he said earlier this month.
If interest bond yields fall during the absence of Treasury sales through March 14, it could be a bullish catalyst for stock prices. Equities were dinged in December and the first two weeks of 2025 as the 10-year US treasury yield approached the 5% level that has historically been a negative catalyst for stocks.
The lack of new treasury supply could be a win for investors owns stocks and bonds.
Eric Wallerstein, chief markets strategist at Yardeni Research, told Business Insider that lower bond supply would “technically” be positive for asset prices. Still, it could also raise concerns among investors if the debt ceiling boosts for too long.