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October 2013 - While the debt ceiling was passed and default avoided on a short term basis, our 12-month outlook remains as we shared two weeks ago:
The deal signed by Congress and the President extended government funding though January 15 of next year with borrowing authority extended through February 7. On the latter point, however, there are reports the Treasury may have access to “extraordinary measures,” including the ability to draw down cash balances and spend tax receipts to extend this deadline for a period of time. In any event, the default was avoided, but the political machinations will likely continue to provide theater for observers and a source of periodic volatility for investors.
We believe the effects of the partial government shutdown will largely be transitory in nature with furloughed government employees receiving back pay and benefits for the roughly two-week period. Although consumer and business confidence have dipped, it is likely those levels will normalize as government operations resume.
Our move in June to a more defensive posture remains, as we believe the odds favor higher interest rates over our investment horizon.
We are shortening average maturities and assuming slightly more credit risk.
The nomination of Janet Yellen as the new Fed Chair leads us to believe that QE stimulus will continue, especially in light of recent government actions, for a few more months.
We advise clients to minimize their cash holdings as nominal short interest rates will likely remain very low.
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Information provided is for illustration purposes only and is not intended to be individual investment advice. KeyBank does not give legal advice.