U.S. Bill Sale Shows Calm Before Debt-Limit Vote: Reality Check

Treasury-bill auctions suggest investors are betting U.S. lawmakers will successfully raise the nation’s borrowing limit after Speaker John Boehner said the House will vote on the measure with no conditions attached.

A U.S. Treasury sale of one-month bills saw the strongest demand in four weeks today even after the Feb. 7 expiration of an agreement that suspended what’s known as the debt ceiling. That followed yesterday’s sale of a record amount of three- and six-month bills. Current one-month bill rates dropped three basis points to 0.03 percent after Boehner, an Ohio Republican, gave in to Democratic insistence on a so-called clean measure to suspend the borrowing limit until March 15, 2015.

Treasury Secretary Jacob J. Lew said last week the nation’s ability to borrow may not last past Feb. 27 without congressional action. One-month bill rates surged as high as 0.45 percent before retreating on Oct. 16, when lawmakers reached agreement to end a partial government shutdown and raise the borrowing capacity to remove the risk of default.

“The auction statistics suggest market participants are becoming less and less concerned that there will be a long and dangerous debt-ceiling impasse,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of 21 primary dealers required to bid at U.S. debt auctions. “The market’s faith in government is not fully restored until the president’s pen hits paper, but the sentiment is getting there.”

The Treasury auctioned a $8 billion of one-month notes today after selling a $84 billion of three- and six-month bills yesterday to give it greater flexibility after the expiration of the debt-limit suspension. The U.S. is now free to issue as much debt as it wants until extraordinary measures used to create room under the limit are exhausted.

‘Bottom Line’

Republicans backed down from a plan last night to move a debt-limit increase that would include benefits for military retirees. President Barack Obama and congressional Democrats have said for months that a debt-ceiling increase mustn’t be combined with other policy measures. Boehner said today the bill would get minimal support from his party.

“The bottom line is we need to get our work done,” Rules Committee Chairman Pete Sessions, a Texas Republican, told reporters today after a private party meeting.

Treasuries

The rate on the three-month bill was 0.05 percent, down four basis points from Feb. 7. The rate on the bill due March 6 was 0.05 percent, after climbing five basis points to 0.095 percent Feb. 7.

The U.S. Treasury Department sold $8 billion in four-week bills at a yield of 0.03 percent. The bid-to-cover, a gauge of demand, was 5.88, the highest in four weeks.

The U.S. 10-year yield rose six basis points to 2.72 percent at 1:02 p.m in New York, according to Bloomberg Bond Trader prices. The yield is down from as high as 3.05 percent in the first month of 2014.

The Bloomberg Global Developed Sovereign Bond Index (BGSV) has returned 2.1 percent this year, reflecting demand for the safest assets amid signs of slowing growth.

Swap Spreads

The U.S. two-year interest-rate swap spread, a measure of debt-market stress, narrowed 0.43 basis points to 11.63 basis points. The gauge typically narrows when investors favor assets such as corporate bonds and widens when they seek the perceived safety of government securities.

Credit

A gauge of U.S. company credit risk increased. The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, rose 0.25 percent to 67.75 basis points, according to prices compiled by Bloomberg. The index typically climbs as investor confidence in credit deteriorates and falls as it improves.

Dollar

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell 0.1 percent to 1,023.34.

Stocks

The Standard & Poor’s 500 Index rose 0.9 percent to 1,815.91. The Dow Jones Industrial Average added 1.1 percent to 15,968.35 points.

Volatility

The CBOE Volatility Index (VIX), or VIX, fell 0.92 percent to 14.34. Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE index fell to 62.26 yesterday from 64.75 on Nov. 7.

Currency swings as measured by the JPMorgan Global Volatility Index rose 0.62 percent to 8.1 percent.

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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