Investors Are Anticipating a Messy Debt-Ceiling Debate

  • Rate on Oct. 12 bills up by 10bps in two days as value drops
  • Move is due to a combination of debt ceiling, budget fears

Trump Threatens Shutdown Over Border Wall Funding

For investors already anxious about the debt ceiling, recent comments from President Trump are doing little to allay their concerns.

The rate on Treasury bills maturing Oct. 12 jumped by as much as 5 basis points Thursday, the largest intraday move since March, after Trump blamed Congress’s inability to increase America’s borrowing authority on the Republican leaders in a series of tweets. The bills, which mature around the time when Treasury is estimated to run out of money unless lawmakers extend or suspend the statutory limit on the nation’s borrowing, are currently trading at 1.17 percent.

The recent rise in October rates is “the culmination of the passage of time coupled with President Trump threatening a government shutdown to get his border wall funding and the fact that his tweets make it seem like raising the debt ceiling is going to be a bigger challenge,” said Mark Cabana, head of U.S. short rates strategy at Bank of America Corp. “Shifting blame onto other Republican leaders just increases the headline risk.” 

The surge in rates began Wednesday morning as investors reacted to comments Trump made at an appearance in Phoenix the previous evening, when he threatened to bring the government to the brink of a shutdown if needed to pressure Congress into funding a Mexican border wall.

Treasury bills started pricing in debt-limit risks last month as investors pushed up costs at a sale of three-month bills to the highest level since 2008. Rates retreated from multi-year highs after Treasury Secretary Steven Mnuchin said in a letter to Congressional leaders in July that it is “critical” the debt limit is raised by Sept. 29.

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