The X-Date Countdown — Market Insights (April 2023)
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The X-Date Countdown — Market Insights (April 2023)

18 May
18 May

X marks the spot

The US debt ceiling drama that has been unfolding has been the subject of many headlines over the past few weeks. But, what is the debt ceiling and why is there a standoff? The debt ceiling is essentially a limit on the amount of debt that can be borrowed by the US Treasury. The US government issues bonds to sell to investors around the world to meet its obligations such as paying social security benefits, interest on its current national debt, and so on. Currently, the ceiling stands at about US$31.4 trillion, and the US hit this limit in January 2023.

Chart: On the verge of breaking the debt ceiling; the US Treasury is close to running out of borrowing headroom. Source: Bloomberg, US Treasury Department

The US Treasury Department has now resorted to “extraordinary measures” to continue meeting the US’ obligations. This means it is now running down its cash balance until there is none left. How long the cash balance will last is hard to determine. Janet Yellen, the US Treasury Secretary, has remarked that the X-date — which is when the US is no longer able to pay its bills — could be as early as 1 June 2023.

Given that the debt ceiling is entirely self-inflicted by the US, why is it so difficult to reach an agreement to increase this artificial (and arbitrary) limit? The Democratic party currently has control of the US Senate while the Republicans are in control of the House. Democrats want to raise the debt ceiling without any conditions attached, but Republicans want spending cuts to food stamps, government aid, and renewable energy tax breaks in order to raise the debt ceiling. With neither party willing to concede, they have now reached stalemate.

Will the US default on its debt?

The US has never had a default. But we’ve seen this show before — many times, in fact. The debt ceiling has been increased 102 times since World War II. However, the situation is made much worse when the Senate and the House are each controlled by different parties. The most recent and perhaps most relevant episode occurred in 2011 when the ceiling was raised just two days before the X-date. The US federal government’s credit rating was then downgraded from AAA to AA+ by a major credit rating agency.

If the debt ceiling is not raised in time, the risk of default could increase exponentially. The impact to the US and global economy could be catastrophic, even though the US would eventually be able to meet its obligations. There are some who argue that the US Treasury and the government could find ways to mitigate the potential fallout, but no one can clearly predict how that would play out.

In 2011, we saw the S&P 500 index decline by about 19% from the peak in April 2011 to the trough in October 2011. By February 2012, the US market had bounced back up to its level in February 2011.

The two main takeaways from history are: 

  1. Policymakers have generally come to a compromise in order to prevent an economic catastrophe, and
  2. The impact may be more limited and transitory in nature.

Market reactions to the drama

Even with the brouhaha around the US debt ceiling saga, the CBOE Volatility Index, or VIX, has been lying low.

Chart: All quiet - the stock market isn't expecting much volatility in the weeks ahead, based on the Chicago Board Options Exchange Volatility Index or VIX. Source: Bloomberg

As we draw closer to the X-date, short-term US Treasury bills with a maturity date around or after the X-date have seen their yields increase. However, yields on longer-dated Treasury bonds remained largely unchanged.

Chart: What a difference three weeks can make. Yields on US Treasury bills (T-bills) that are maturing after the US debt ceiling X-date have surged. The chart shows the 23 May T-bill yield versus the 13 June T-bill yield. Source: Bloomberg

Aside from T-bills, there was significant movement in credit default swaps (CDS) on US debt as the cost of insurance on US debt spiked.

Chart: The rising cost of insuring US debt against non-payment. Credit-default swap (CDS) prices above the highs of previous debt-cap episodes. Source: Bloomberg, CME. Pricing through 8 May 2023.

With diversification, long-term investors can rest easy

Most analysts and market experts believe the risk of a US debt default is very low. The situation becomes less bleak and more manageable if you look at the average expected outcome of possible scenarios encompassing a resolution to the US debt ceiling issue and a catastrophic default, and taking into account all the probabilities.

Moreover, even in the unlikely outcome of a technical US debt default, we believe the impact may be short-lived as we have seen with other global events in history. A study of bear markets and subsequent recoveries from the 1800s to early 2020 by Goldman Sachs Investment Research showed that the average event-driven bear market tended to last no more than 10 months, and took fewer than 20 months to recover. 

Diversification, diversification, and diversification in all aspects is most likely the best defence against uncertainty. If your risk tolerance and risk appetite allow for it, making sure you have both equity and fixed income in your portfolio could help. 

For Professional Investors in Hong Kong, you can also consider adding alternative investments for further diversification in your investment portfolio. Endowus has a private wealth arm that provides access to alternative investments including hedge funds, private real estate, private equity and private credit strategies. For more information, contact us for a consultation or email us at

Read more: Understanding alternative investments 

April market commentary

To wrap up, here is a summary of April 2023 market performance. 

Both the global equity and the fixed income markets had a positive month in April 2023, albeit a small gain. The MSCI All Country World Index (net div, USD) rose 1.4% while the Bloomberg Global Aggregate Index (USD, hedged) gained 0.5%.

The best-performing region for the month was Europe. The MSCI Europe Index (net div, USD) posted a 4.1% gain, the S&P 500 rose 1.6% and the MSCI AC Asia Index (net div, USD) fell 1.2%. Gross domestic product (GDP) data showed that the eurozone economy grew by about 0.1% after being flat in the fourth quarter of 2022. The aggregate eurozone GDP growth figure was boosted by relatively strong expansion in Spain and Italy. In the UK, financials was one of the top performing sectors for the month as fears around the banking crisis receded somewhat. The March inflation number was higher than January’s, adding to speculation that the Bank of England may have to increase rates again to tamper inflation.

The US had a lacklustre month as weaker economic data weighed on investors’ minds. The collapse of First Republic Bank and its subsequent acquisition by JP Morgan caused some uneasiness, but the markets digested and took the news in stride. The Fed raised rates again in May, by another 25 basis points, but signalled that it might pause on subsequent hikes.

Emerging markets, as a region, retracted 1.1%, underperforming the developed markets by about 2.9%. The weak performance was largely due to China, falling more than 5% in April. The renewing of US-China tensions was one factor contributing to the decline.

In a reversal from March, value stocks made a comeback and outperformed growth stocks during the month of April. Global large-cap stocks continued to outpace small-cap stocks.

In fixed income, bond returns were generally flat after the rally in March because of lower bond yields. Credit markets were generally positive in April.

The S&P GSCI — a benchmark for investment in the commodity markets — saw a small decline of about 0.8% in April as agriculture, energy and industrial metals posted negative returns. Crude oil and gold rose modestly for the month.

Building a long-term resilient portfolio with Endowus Fund Smart 

It is almost impossible to predict exactly how macro events would play out. However, spreading your investments across asset classes and geographies will help with diversifying your risk. With market volatility comes opportunities. If you have a long-term investing horizon, as many of us do, these developments may offer an opportunity through steady, regular investing in diversified and risk-adjusted portfolios.

With digital wealth platform Endowus, you can plan and manage your money — by investing in Best-in-Class Funds and globally diversified, intelligent, low-cost funds and portfolios seamlessly.

Click here to get started with your investing journey with Endowus Hong Kong today.

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Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. 

This article is not intended to be relied upon as a forecast or research or investment advice, and should not form the basis of any investment or other decisions. The information contained herein is not intended, and should not be construed, as any legal, tax, regulatory, accounting or financial advice. If you would like investment, accounting, tax or legal advice, you should consult with your own professional advisors regarding your individual circumstances and needs.

The information in this article may not be suitable for all investors. You are responsible for any action that you take or decision that you make in reliance on any content in this article, and you agree that Endowus HK Limited (“Endowus”) is not liable under any circumstances.

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Neither the information, nor any opinion, contained in this article constitutes a recommendation, offer or solicitation  by Endowus or its affiliates to you to buy or sell any securities, collective investment schemes or other financial instruments or services, nor shall any such security, collective investment scheme, or other financial instruments or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. 

This is not intended to be an invitation or offer made to the public to subscribe for any financial product or to enter into any transaction.

Accuracy of Information

Whilst Endowus has made reasonable efforts to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or errors in any such information. Endowus does not warrant or represent that the information in this article is correct, accurate or reliable. 


Any opinion or estimate above is made on a general basis and none of Endowus, nor any of its affiliates, representatives or agents have given any consideration to nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Opinions expressed herein are subject to change without notice.  

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this article are subject to market influences and contingent upon matters outside the control of Endowus and therefore may not be realised in the future. 

In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances.

This article has not been reviewed by the Securities and Futures Commission of Hong Kong.

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