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Wall Street trembled when Republicans first began threatening to force the United States into default by not raising the federal debt limit, but after four years of fiscal standoffs, the threat looks increasingly like a bluff and the markets are calling it.
A Reuters analysis, tracking short-term Treasury yields, credit default swaps and market volatility data, showed traders are increasingly less likely to respond to repeated ultimatums from Republicans in the U.S. Congress about the debt limit.
That could spell trouble in the future if politicians see little market consequence from precipitating an unprecedented default, but some analysts were doubtful it would come to that.
"The near-death experience we had in 2011 has given us the sense that we're not going to do that again," said Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, North Carolina. "It's taken some of the fear out of the market."
For now, after five years of fighting, the debt limit battles on Capitol Hill have gone quiet. That's due to a 17-month truce forged by former U.S. House of Representatives Speaker John Boehner just before he resigned a few weeks ago.
That has silenced the issue, as Boehner hoped, during the 2016 presidential and congressional election campaigns. But hostilities could be renewed in mid-March 2017, just as the next U.S. president will be settling into the White House.
Indeed, some Republican fiscal hawks are itching for another chance to demand cuts in federal spending as a condition for raising the debt limit, saying Boehner sold them out.
"Did we get much out of it? No. We got nothing. We did a clean debt ceiling increase," said Representative David Brat, a Virginia member of the House Freedom Caucus, a hard-right Republican faction known for fiscal brinkmanship.
The United States is one of few nations worldwide in which the legislature must approve periodic increases in the legal limit on how much money the federal government can borrow. Until recent years, Congress generally rubber-stamped such approvals.
When Republicans started threatening to force a federal default if their demands for reduced government spending were not met, the goal was to scare their political rivals. As it turned out, the Democrats never flinched, but the markets did.
In August 2011, congressional Republicans demanded that the projected federal budget deficit be cut by $4 trillion over 10 years or they would not vote to raise the debt limit.
Democrats, defending pet spending programs, resisted. Talks to end the dispute collapsed and the U.S. Treasury came close to the first debt default in U.S. history. This was averted by a last-minute deal that was closely followed by Standard and Poor's decision to cut the U.S. credit rating below its top tier for the first time.
The episode triggered the highest reading in the CBOE Volatility Index, sometimes known as the fear index, since the 2008-2009 financial crisis.
In October 2013, when another debt-limit fight coincided with a 17-day government shutdown, the VIX was more muted. Just a month ago, another episode barely registered on it.
A similar pattern of declining market impact is evident in yields on one-month Treasury bills, the debt security most vulnerable to short-term payments disruptions.
Closing yields, measured in thousandths of a percentage point in recent years with short-term rates effectively at zero, spiked to just under two-tenths of a percentage point during the 2011 episode. They jumped to a third of a point during the 2013 shutdown as uncertainty reigned, but this year's debt limit debate in late October saw a rise of only a tenth of a point.
Spikes in the cost of insuring U.S. government debt against default also moderated with each recurring dispute, even in 2013, for both one-year and five-year credit default swaps.
Ryan takes over
Reduced financial market worry about the debt limit has coincided with increased hesitancy among some Republicans to create standoffs over the issue, though demand for spending cuts remains high in the party.
Brat and other fiscal hawks said they expected new House Speaker Paul Ryan to approach the next debt limit deadline more aggressively and with more advance planning.
"One of my high hopes for serving under Paul Ryan, is that we're not going to let these deadlines creep up on us again," said Blake Farenthold, a conservative Texas Republican.
Ryan in October voted for a bill that would prioritize debt payments in the event the debt ceiling is not increased, indicating he does not consider such a scenario unthinkable.
The measure, derided by Democrats as the "Pay China First Act" because Beijing holds $1.2 trillion in U.S. Treasury debt, drew a veto threat from the White House, which said the proposal would force defaults on other obligations, including payments to Medicare and veterans programs.
Even the few remaining moderate Republicans said there will always be threats over the debt limit. "I don't think that has gone away," said Republican Senator Susan Collins of Maine.