Welcome to Thoughts on the Market.

I'm Michael Zeezes, Head of Public Policy Research and Municipal Strategy for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about

the intersection between U.S. public policy and financial markets.

It's Wednesday, May 19, at 10.30 a.m. in New York.

Being an investor means thinking ahead and asking a ton of what if questions.

And while markets have a way of blind sighting you no matter how many what ifs you ponder,

it'll surely be caught off guard less if you're asking the question regularly.

In that spirit, today we ask what if Congress fails to pass an infrastructure package this

year.

If you've been listening, you know we feel strongly that Congress will make it work.

But of course we could be wrong, and so we have to consider what markets would look like

if we are, so we can be prepared to react if it starts to look like Congress will fail

to deliver.

The first thing to understand is that the U.S. growth outlook would be different.

Not so much in 2021, but in 2022, where the difference between having and not having

the fiscal boost associated with the infrastructure package is about 2.5% on real GDP growth.

The easiest place to see this difference play out would be in the treasury market.

Without that infrastructure package and our expectation that it would add about $2.2 trillion

to the deficit over 10 years, our rate strategy colleagues would expect treasury yields would

remain steady rather than rise to above 2%.

That would be good news for bondholders' total returns.

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