Now that the bill has been signed, the debt ceiling crisis is over, but investors still have to deal with the fallout. Some analysts say there will be opportunities after the debt ceiling is lifted – but there are also potential minefields that need to be avoided, such as the influx of US Treasuries. That’s what they say. Paul Gambles, managing partner risk assets at MBMG Family Office Group, said he expected a “short rally in risk assets and risk currencies” after the debt-ceiling agreement, but added that this presented challenges at a “portfolio level”. “While data patterns have been interrupted by policy-driven economic and market disruptions, especially over the past few years, it is unclear whether the roller coaster ride will continue and whether cross-asset correlations will continue to render traditional diversification moot, ’ he added. Gambles said the debt-ceiling fiasco was the “latest iteration” of a series of systemic missteps by the Fed and Treasury, citing persistent inflation in the country as a result of aggressive asset-buying programs in the wake of the pandemic. For now, he said the short-term outlook for risk assets would be “very fragile.” Gambles warned that investors should also expect “substantial volatility” in short-dated Treasuries after the trade, given the large volume of these bonds that the Treasury needs to issue. In a June 4 report, Citigroup said it expected a net short-term increase in US Treasury issuance of about $400 billion, mostly short-term bills. “Such a large supply of ‘risk-free’ high-yield Treasuries competes for a variety of investor assets,” Citi said. Treasuries with the highest yield and the least risk. “This is more likely to effectively tighten financial conditions over the ensuing period,” it concluded, adding that other markets may underperform “temporarily”. The “biggest beneficiaries” in the current market are likely to be gold miners and long-dated Treasuries, Gambles said, adding: “That’s where we’re really going to see prices go up.” buy. “If you still believe that U.S. policy makers have figured this out, and this is the first time they’ve managed to engineer a soft landing, I think those policies provide portfolio insurance,” he told CNBC. The stakes are high, so the best sectors are gold mines and zero-coupon 25-year Treasuries.” Meanwhile, Citi said there could be opportunities in non-U.S. bonds — especially higher-yielding investment-grade emerging market debt. Bank of America However, analysts at Citi also warned that rising U.S. Treasury yields could suck deposits from weaker U.S. banks. “The shift from bank deposits to U.S. Treasuries won’t necessarily lead to new bank failures, but systemic risks to banks could rise again despite regional bank stocks gaining 4.8% this week,” said Citigroup, whose analysts urged investors to be vigilant The most vulnerable banks, especially those with a high proportion of commercial real estate loans in their portfolios. Small Caps Citi notes that small caps are tied to the performance of regional banks. However, regional bank stocks could recover once they perform better amidst stabilizing economic conditions, the bank said. “While it may be a little premature to join (small and mid-caps) during the Treasury borrowing boom, on a multi-year time horizon, quality small-cap value stocks look attractive at current levels,” the bank said. And added that the profitable small-cap name is now trading at a 26% discount to its larger peers. “By 2024, when the Fed turns, we also expect small-cap growth stocks to catch up, led by non-cyclical healthcare and technology companies. Remember, ‘bearish investors’ have a record amount of sideline money to put into use,” Citi added.