A Day of Remembrance

Originally called Decoration Day, Memorial Day was first observed after the Civil War and is in remembrance of those men and women who have died in military service to our country. Memorial Day was declared a federal holiday in 1971 and commemorated on the last Monday in May.

Enjoy the unofficial kick-off of Summer and remember those who perished serving our country.

Debt Ceiling Debate

Failure to reach a deal..."Would be a negative signal of the broader governance and willingness of the U.S. to honor its obligations in a timely fashion and would be unlikely to be consistent with a "AAA" rating" – Fitch rating agency.

As of this press time, there has been no resolution to the debt ceiling negotiations. This event has caused major disruptions in the financial markets, including a spike in interest rates over the last few weeks.

Adding to the uncertainty, the bond rating firm Fitch has put our debt on a negative rating watch. This is a direct threat that if we do not resolve the debt ceiling, a credit downgrade would result.

History Might Be On Our Side

Back in April 2011, our debt was put on negative watch by credit agencies and on August 5th, 2011, our debt was downgraded. What happened at that time? Rates improved.

After a week plus of rates edging higher, maybe this event will start the process of stabilization. If you look at the chart section below, you can see MBS prices were able to remain above support, which means rates stopped increasing.

The lack of resolution on the debt ceiling may be a reason why the Fed may very well pause on hiking rates in June.

Bottom line: As the debt ceiling debate continues unresolved, we should not expect much if any improvement in interest rates.

Looking Ahead

Until resolved, the debt ceiling remains the biggest issue for our economy. But next week will have additional headline risk with Fed speakers and the Jobs Report next Friday.