wall street was watching as president joe biden said wednesday that he is confident that the white house and congressional leaders would reach a deal on the debt ceiling one worry is that once a resolution is reached the government could start to issue new debt which might push treasury yields higher and in turn weigh on stocks but that isn’t likely to be the case according to nicholas colas cofounder of datatrek research who based his argument on historical data current trends in inflation expectations and real rates while analysts have been cutting their sp 500 index spx earnings estimates for the rest of the year the market would need lower treasury yields to support equity valuations at current levels colas said in a wednesday note heading into firstquarter earnings he said wall street analysts cut estimates for secondquarter earnings by 7 to roughly 5314 per share from 5716 the 10year treasury tmubmusd10y yield was at 358 wednesday down about 25 basis points yeartodate but still up almost 70 basis points from a year ago according to dow jones market data back in 2011 when a debt ceiling deal was reached between the obama administration and the republican majority in congress only at the last minute both real yields and inflation expectations declined which is shown in the chart below real yields continued to drop in 2012 as the fed continued expanding its holdings of treasurys and other governmentbacked bonds that isn’t expected to be the case in 2023 as the fed squarely has tamping down inflation in focus with a specific goal of getting it down to its 2 annual target read what happened to investments during the 2011 debtceiling crisis recently both inflation expectations and real yields have been declining from their 2022 highs in april of that year and october of the same year respectively colas noted colas said he expects real rates to stabilize as the fed lets a set portion of its maturing treasurys roll off its balance sheet each month rather than adding to its 85 trillion balance sheet “inflation expectations should continue to drop however as the us economy slows” colas wrote “the net effect will be lower or at worst stable 10year treasury yields with expectations for corporate earnings still dropping it will be important for riskfree rates to stay stable or decline to offset diminishing future public company cash flows” noted colas stocks closed higher wednesday with the sp 500 up 12 at 4148 the dow jones industrial average djia rose 12 and the nasdaq composite index comp gained 13 read biden says ‘america will not default’ on us debt