Sequester Deadline March 1st

As the deadline approaches for the federal government to take action to prevent $1.2 trillion of automatic spending cuts from the federal budget, known as sequestration, there currently are no serious proposals to prevent it. While estimates vary about the economic impact in terms of GDP growth, and how specific cuts will be felt by individuals, it is clear that sequestration would be a very big impediment to the recent strength we have seen in the domestic economy. The cuts are intended to help curb the budget deficit; however, in our view, this austerity in the face of a fragile recovery, coupled with no change to entitlement program spending, will not result in the desired effect. Thus, we view the pending sequestration as a credit negative and one that will put a halt to growth and rising rates in the near term. This possibility is yet another aspect to the many factors that dictate where bond yields will be as we move through 2013.