The US fiscal deficit is falling rapidly, after accelerated deficit reduction measures took effect in 2013. Bond yields are rising from record lows in 2012, but the federal public finances look strong enough to absorb higher borrowing costs. Congress voted to increase the government's borrowing authority (debt ceiling) on October 16th, only hours before it would have expired. There may be more brinksmanship when the debt ceiling needs to be raised again in early 2014, which could force the government to delay payments on its obligations, including, possibly, interest or principal on government-issued bonds. However, The Economist Intelligence Unit believes that the US Treasury will find a way to prioritise bond payments.
