Treasury Bill Rates at Almost Record Low as U.S. Debt Ceiling Is Reached
May 16 (Bloomberg) -- Jerome Powell, a visiting scholar at the Bipartisan Policy Center and former undersecretary at the U.S. Treasury, talks about the outlook for raising the U.S. debt ceiling. Powell speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
May 16 (Bloomberg) -- Jim Kessler, co-founder of think tank Third Way, discusses the debate over the U.S. debt ceiling and the likely impact a default would have for the economy. He speaks with Deirdre Bolton and Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
May 16 (Bloomberg) -- House Democratic Leader Nancy Pelosi talks about negotiations in Congress over raising the U.S. debt ceiling, and the outlook for spending cuts and tax policy. She speaks with Peter Cook on Bloomberg Television's "Bottom Line With Mark Crumpton." (Source: Bloomberg)
May 16 (Bloomberg) -- Carl Lantz, head of interest-rate strategy at Credit Suisse Securities, discusses the outlook for U.S. Treasuries and negotiations over extending the U.S. government’s borrowing authority. Lantz speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
May 19 (Bloomberg) -- Maya MacGuineas, president of the Committee for a Responsible Federal Budget, talks about negotiations over extending the U.S. government’s borrowing authority and the outlook for a federal deficit plan. MacGuineas speaks with Betty Liu and Peter Cook on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Treasury bill rates were at almost record lows as government authorities curtailed short-term debt issuance to conserve borrowing capacity with the U.S. reaching its federal borrowing threshold of $14.3 trillion.
Ten-year Treasury notes fell as investors sought safety as Greece sought additional bailout funds. Bills remained near record lows as Treasury Secretary Timothy F. Geithner said he has taken action to stave off the federal debt limit until Aug. 2, using accounting measures that involve two retirement funds.
“There is a lot of cash looking for short-term paper that doesn’t have anywhere to go, and it’s keeping note yields near zero,” said Thomas Simons, a government debt economist in New York at Jefferies Group Inc., one of 20 primary dealers that trades with the Federal Reserve. “As bill supply declines, expect more of the same in the very front end.”
Benchmark 10-year note yields fell two basis points, or 0.02 percentage point, to 3.15 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.125 percent note maturing in May 2021 rose 6/32, or $1.88 per $1,000 face amount, to 99 26/32. The yield fell on May 13 to 3.13 percent, the lowest level since December. Six-month rates were at 0.07 percent, compared with the record low 0.0305 percent set May 6. Three-month bill rates were at 0.02 percent, almost the lowest level since they went negative during the financial crisis.
Treasury bills, notes and bonds fluctuated as Geithner wrote lawmakers today to say he has declared a “debt issuance suspension period,” a technical measure that allows him to free up borrowing room from the Civil Service Retirement and Disability Fund and the Government Securities Investment Fund.
Obama on Deficit
President Barack Obama said on CBS’s “Face the Nation” in a segment taped May 11 in Washington for broadcast yesterday that failure to raise the debt ceiling might disrupt the global financial system. Republicans are seeking spending cuts and no tax increases in exchange for supporting a higher debt limit.
“For every dollar the president wants to raise the debt ceiling, we can show him plenty of ways to cut far more than a dollar of spending,” House Budget Committee Chairman Paul Ryan, a Republican from Wisconsin, said in Chicago today.
Since the government shut down non-essential services in 1995, the borrowing threshold has been increased 12 times. In half of those instances, Congress waited until the ceiling had been reached before it was adjusted.
“It’s hard to imagine a strong selloff in Treasuries given the dynamics in play,” Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “This is the day that the debt ceiling is officially reached, which puts some pause in the Treasury rally. Even though we technically have until August, it is a story to pay attention to.”
Bill Supply
Bill supply has slid since February after the Treasury eliminated $195 billion in short-term debt it sold on behalf of the Federal Reserve to help avoid exceeding the U.S. debt limit.
China reduced its holdings of Treasuries in March by 0.8 percent, or $9.2 billion, to $1.14 trillion, led by an $8.6 billion reduction in its position in Treasury bills to $5.7 billion, Treasury figures released today show.
Japan increased its holdings of Treasuries by 2 percent to $907.9 billion in March, when the largest earthquake in its history led to a tsunami and nuclear disaster.
Foreign holdings of bills fell for a fifth month to $414.9 billion, the lowest level since October 2008. Overseas holdings of the shortest-maturity Treasuries decreased by $17.5 billion, or 4.1 percent.
Fed Purchase
The Fed bought $1.4 billion of Treasury Inflation Protected Securities due from January 2015 to February 2041 today under its plan to spur the economy. Fed Chairman Ben S. Bernanke said the central bank will likely continue reinvesting maturing debt after its $600 billion bond-buying program expires in June.
“People are trying to get a handle of what we should be doing from here,” said Larry Milstein, managing director in New York of government and agency debt trading at RW Pressprich & Co., a fixed-income broker and dealer for institutional investors. “Rates should be higher, but the commodity unwind and concern about peripheral Europe are underlying the strength in Treasuries, not to mention that the Fed is still buying Treasuries. It is a market where you have to be nimble.”
German 10-year yields rose to almost eight basis points more than similar-maturity Treasuries on May 4 amid concern that Chancellor Angela Merkel’s 142 billion euro ($200 billion) bill for aiding Greece and Ireland will make the country’s debt riskier. As recently as January, bunds yielded about 53 basis points less than U.S. debt.
Yield Spreads
Europe’s benchmark bonds reflect the European Union’s rising budget deficits and the growing gap between inflation in the region and the U.S., where the Fed shows no signs of increasing borrowing costs from record lows. European finance ministers met today to discuss more support to help Greece avoid restructuring its debt.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Greece is the world’s biggest candidate for default.
“We suggest that Greece is insolvent and that at some point the can cannot be kicked down the road any further,” said Gross in an “InBusiness with Margaret Brennan” interview on Bloomberg Television. “Ultimately debt holders will have to bear some of the burden as well.”
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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