T-bill yields begin to incorporate the uncertainty of the debt ceiling


By Karen Brettell

Aug.11 (Reuters) – Some yields on U.S. Treasuries are starting to reflect concerns that lawmakers could wait until the last minute to raise or suspend the debt ceiling, after a budget plan failed to include a provision for solve the problem.

The Democrat-controlled US Senate on Tuesday passed a massive infrastructure bill and immediately kicked off debate on a $ 3.5 trillion spending plan, though it does not include an increase or suspension of the debt limit.

“The fact that the debt limit was not addressed in the budget plan really sets up a pretty controversial battle for another increase,” said Jonathan Cohn, business strategist at Credit Suisse in New York. As a result, “we are now starting to see a drop in bills in this area at the end of October, beginning of November”.

The two-year government debt ceiling suspension expired last month. The Treasury should be able to fend for itself until October or later using extraordinary measures.

Dozens of Republican senators on Tuesday signed a pledge not to vote to increase the country’s borrowing capacity when it runs out in the fall.

“It just makes it more likely that we are approaching the eleventh hour scenario,” said Tom Simons, money market economist at Jefferies in New York City. “When that happens, the yield curve tends to bend. “

Investors are likely to avoid bills that mature soon after the Treasury is likely to run out of liquidity, even if default risks are low. This means that the yields on these issues may exceed the yields on longer-term debt, which is unusual in the Treasury yield curve.

Movements so far are small and short-term yields are largely stuck around the 5 basis point level, which is the rate investors can earn by borrowing Treasury bills from the Federal Reserve of the day. overnight as part of its repurchase agreement.

However, bills maturing in late October and early November, when the Treasury is most likely to face funding pressures, have climbed higher and are returning around 5.5 basis points. Those maturing at the end of September, by comparison, yield around 4.7 basis points and those maturing in December, once the problem is expected, a yield of 4.7 to 5.3 basis points.

(Reporting by Karen Brettell; Editing by Steve Orlofsky)

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