Bond investors were unrattled. Yields on 10-year U.S. Treasury notes declined from 2.96 percent on July 22 to 2.56 percent on Aug. 5, 2011, the day of the S&P downgrade. Yields continued to drop, reaching 1.72 percent on Sept. 22 of that year.
On Friday, the Labor Department reported the U.S. added 155,000 jobs last month and the unemployment rate held at 7.8 percent.
“The market is not worried about default,” said Zach Pandl, an interest-rate strategist in Minneapolis at Columbia Management Investment Advisers, which oversees $340 billion.
“In the U.S., the debt level is lower than comparable countries, growth is higher and we have a unblemished track record in the U.S. of debt repayment, all of which has helped calm investor concerns,” he said. “The process is messy, but the outcome is always acceptable.”
The budget deal that Obama and lawmakers struck this week averted the so-called fiscal cliff of income-tax increases on most Americans and delayed automatic spending cuts until March 1. So while Obama has pledged not to negotiate over the debt limit, that timing raises the possibility that talks to address the automatic cuts would also include the debt ceiling.
Treasury Secretary Timothy Geithner, a key figure in Obama’s response to the recession and the 2011 debt-limit talks, plans to leave the administration at the end of January, even if the president and Republicans haven’t reached an agreement on the debt ceiling, said two people familiar with the matter.
The two sides start far apart.
House Republican leaders have said they will demand a dollar in spending cuts for every dollar that the federal debt limit is increased. House Republicans plan to discuss strategy at a retreat in Williamsburg, Va., this month.
In contrast to the Republican focus on spending cuts, Obama said on Dec. 31 that any deficit reduction to block scheduled spending cuts would have to be “balanced” to also contain more tax revenue.