: raising the debt ceiling, passing a budget and embarking on tax reform. As MS cross-asset strategist Andrew Sheets noted, "none are easy, but we see the debt ceiling as the most immediate test."

He then cautioned that while the most likely outcome is that, after some tension, the debt ceiling gets raised "we don't think it will be easy, or smooth, and it may require some form of market pressure to get different sides to fall in line. I've spoken to investors who are comforted by FOMC transcripts from 2011 that discussed prioritization of debt payments in order to avoid default. I am not. First, I worry that this reduces the urgency of what remains a serious issue. Second, this prioritization would require delaying payments to programmes like Social Security and Medicare, with real human and economic cost. And third, while the mechanics of this prioritisation may work, it is untested in a live environment."

As reported earlier, the market's concerns about a potential debt ceiling crisis, so far mostly contained, have once again started to bubble to the surface, with the Oct. 5 T-Bill rate rising to the highest level since August 1st, suggesting that bond traders see rising odds of a "worst case outcome" and partially answering our question from Monday whether "Markets Are Sleepwalking Into A Debt Ceiling Crisis: Mnuchin Issues Another Warning."