Our Perspective on the U.S. Debt Ceiling Debates

June, 2023


  • The debt ceiling is the amount of money Congress has authorized the government to borrow. The ceiling has been raised 78 times since 1960.
  • While resolving the debt ceiling fight is unclear, it is only one of many factors that impact security prices.
  • An informed mix of diversified equity and fixed income investments is the best long-term approach for handling uncertainty.

If continuous debate over the debt ceiling gives a sense of déjà vu, well, we’ve seen this before. The Federal debt ceiling, or limit, reflects the amount of money the United States Congress has authorized the government to borrow. Congress authorizes such increases about the time the previous authorized limit has been reached. Congress has acted to raise the debt ceiling 78 distinct times since 1960.1 Occasionally, policymakers have struggled to reach consensus.

The US effectively reached the debt limit back in January, triggering “extraordinary measures” by the Treasury Department to continue servicing existing debts and obligations. But Treasury Secretary Janet Yellen has warned about an “X-date” when “extraordinary measures” may be exhausted.2 As the X-date approaches, many wonder how a breach of the debt ceiling could impact their saving and investing strategies.

While daily media attention may worry you, negative outcomes are not certain. Historically, Congress has always raised the debt limit, and even if Congress failed to increase the limit by the X-date, unless you receive a government salary, your impact may be muted. Interest and principal payments on federal debt for those relying on such vehicles will be paid timely. But trying to predict possible scenarios is unnecessary, given that investment markets have already priced in a range of outcomes. Looking beyond the speculation and sticking to an sensible investment plan is likely the best plan.

Prices over Pundits

Until the political path clears, heightened volatility in both the equity and fixed income markets may be observed. But many factors beyond politics impact security prices. In the debt ceiling crisis of 2011, US Treasury yields declined during the period surrounding the culmination of the tense negotiations that resolved in August of that year (see Exhibit 1), despite S&P downgrading the credit rating on US sovereign debt from AAA to AA+.3 This is the very opposite of what you might suppose. The rewards for holding long-term fixed income instruments increased during that time.

Exhibit 1: Falling Yield

Daily 5-Year US Treasury Yield, 2011

graph - Exhibit 1: Falling Yield - Daily 5-Year US Treasury Yield, 2011

Source: U.S. Department of the Treasury. Past performance is no guarantee of future results.

Flexibility over Forecasts

Market volatility is only part of investing risk. Accepting uncertainty long-term and sticking with your plan is essential to earning unpredictable risk premiums. Planning with a flexible and adaptive investment process navigates volatile market environments for those staying focused on their planning goals. Selling out during a market jump could compromise years of progress when a reversal unexpectedly occurs.

Our approaches have built-in flexibility and this enables managers of your portfolios to adapt to changes in market prices or credit spreads in real time. That includes, for example, avoiding unnecessary trading during times of heightened volatility. Certain types of investment strategies, like traditional indexing, have constraints limiting their flexibility due to their forced tracking to a particular index regardless of changing market conditions.

Designing flexible investment portfolios and processes gives portfolio managers and traders additional tools to skillfully manage ongoing risks, potentially reduce costs, and maintain a focus on higher expected returns even during times of heightened market volatility. This year, measures of interest rate volatility on US Treasury securities have been elevated (see Exhibit 2) but are integrated into managing our client portfolios.

Exhibit 2: Interesting Times

Interest rate volatility on US Treasury securities, 1988–April 30, 2023*

graph - Exhibit 2 - Interesting Times - Interest rate volatility on US Treasury securities, 1988–April 30, 2023*

Source:Data sourced from Bloomberg on May 18, 2023. ICE BofA index data © 2023 ICE Data Indices, LLC.
Based on ICE Bank of America MOVE Index, a yield-curve-weighted index of normalized implied volatility on 1-month Treasury options. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

Diversification over Debates

When uncertainty has increased, flexible diversification is a most important risk management tool. Although a US government technical default likely would temporarily shock markets globally, we believe our informed systematic balanced equity and fixed income allocation approach with Dimensional Fund Advisors – based on your investment policy – is your most reliable way to successfully ride out a coming storm.


1. “Debt Limit,” US Department of the Treasury.

2. “Debt Limit Letter to Congress Members,” US Department of the Treasury, May 15, 2023.

3. Credit rating agencies like Standard & Poor’s Corporation (S&P) rate the credit quality of debt issues. S&P’s scale is from AAA to D with intermediate ratings of (+) or (-) offered at each level between AA and CCC.