Treasury-Bill Rate Hits Seven-Month High as Debt Ceiling Looms

  • Rate on bills due Nov. 12 surges as U.S. nears borrowing limit
  • Treasury 10-year notes gain as yield hovers near 2 percent

Rates surged on short-term Treasury bills that may be most in danger of not being repaid if Congress can’t reach a compromise to lift or suspend the ceiling on government borrowing.

Treasury Secretary Jacob J. Lew last week moved up by two days to Nov. 3 the date by which lawmakers must raise the nation’s borrowing capacity to ensure the government can meet daily expenses. The rate on bills due Nov. 12 reached the highest since March.

“That rate is moving as it’s the bill that will be most likely at risk,” said Stanley Sun, a New York-based strategist at Nomura Holdings Inc., one of 22 primary dealers that trade directly with the Federal Reserve. “We are heading to the final two-week window for the timeline the Treasury gave, and if the situation doesn’t improve then this could escalate to surrounding issues.”

The rate on the bill, which began trading in November 2014, rose as high as 0.165 percent, from 0.0325 percent on Oct. 16, according to Bloomberg Bond Trader data. It traded at 0.0725 percent at 5 p.m. in New York.

Yields on benchmark Treasury 10-year notes fell one basis point, or 0.01 percentage point, to 2.02 percent, after dropping six basis points last week, according to Bloomberg Bond Trader data. The price of the 2 percent Treasury maturing in August 2025 rose 3/32, or 94 cents per $1,000 face value, to 99 25/32.

The rate on one-month bills reached the highest since October 2013. That’s when lawmakers reached a debt-extension agreement just before the Treasury had expected to run out of borrowing authority. Closed-door talks continue between the majority and minority leaders in the Senate and House, according to several congressional aides.

The Treasury is using what it calls extraordinary accounting measures to stay under the borrowing cap. A cash balance of less than $30 billion would probably be depleted quickly, Lew said in an Oct. 15 letter to House Speaker John Boehner, as daily government expenditures can be as high as $60 billion.

In 2013, similar wrangling over the debt ceiling sent rates on bills that matured close to the deadline to a two-year high before a deal triggered a decline. An 11th-hour political agreement allowed President Barack Obama to sign legislation to suspend the debt ceiling and end a partial government shutdown -- on the very day Lew then said the government would exhaust its borrowing capacity.

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