JPMorgan Chase: The Republican Party's major victory reduces the risk of the U.S. debt ceiling next year

JPMorgan Chase stated on Thursday that the results of the U.S. presidential election will cool the debate over the U.S. debt ceiling in the first half of 2025 and reduce the uncertainty surrounding changes in the Treasury General Account (TGA).

The Treasury General Account (TGA) is the main operating account of the U.S. Treasury at the Federal Reserve. This account is used to hold government revenues (such as taxes) and to pay government expenditures, such as Social Security, Medicare, and other federal program expenses. The TGA plays a crucial role in government cash management, as it ensures the normal operation of the federal government by maintaining an appropriate cash balance.

In the absence of a resolution to the debt ceiling issue, the Treasury typically uses funds from the TGA and extraordinary measures to delay a potential default. This makes the TGA balance a key factor in discussions about the debt ceiling, as it directly affects the government's ability to continue paying its bills before reaching a new debt agreement.

Currently, the U.S. suspension of the debt ceiling measures will expire on January 1, 2025, allowing the U.S. government to borrow beyond the debt ceiling to maintain cash flow and ensure smooth expenditures. However, after that, the U.S. Treasury will begin to use extraordinary measures and its cash balance to meet its obligations.

According to Bloomberg News, JPMorgan Chase believes that if the U.S. Treasury's general account balance is $700 billion in the fourth quarter of 2024, and extraordinary measures increase slightly, the likelihood of the Treasury exhausting its funds and facing a technical default before July 2025 is low.

JPMorgan Chase strategists wrote in their report:

"Even with a more favorable debt ceiling resolution, the Trump administration will still need to nominate cabinet candidates and gain approval. We believe that trade and immigration policies will take higher priority before the debt ceiling debate."

Additionally, JPMorgan Chase believes that a Republican landslide in the election results may mean less contentious discussions. Historically, the most controversial debt ceiling debates have occurred during periods when the Democrats controlled the White House and the Republicans controlled the House of Representatives, such as in 2011, 2013, 2015, and 2023.

Although there is still uncertainty regarding control of the House of Representatives, strategists expect that, regardless of the outcome, a new debt ceiling bill will be passed before the official deadline "X date," when cash and some extraordinary measures have been fully exhausted.

Furthermore, according to ICAP data, the first trading prices for overnight general collateral repos (GC repo) were 4.83%, 4.84%, and 4.85%, with bid-ask quotes at 4.86%-4.85%.

According to Wrightson ICAP, the clearing of cash market positions after the election results are announced should reduce the total financing needs for U.S. Treasuries, with an impact that outweighs the effects of short-term Treasury settlement. Data shows that Thursday's short-term Treasury auction settled with a net increase of about $27 billion.

The reduction in financing needs may offset the usual decline in the usage of the Federal Reserve's reverse repurchase (RRP) tool, which typically sees outflows on auction settlement days. On Wednesday, 57 participants deposited $177.9 billion in the RRP, up from $144.2 billion the previous trading day