The Bond Market Is Dismissing a U.S. Default. Should You?
Treasury bills are calm relative to past debt-ceiling episodes despite the fraught politics ahead.
Treasury Secretary Janet Yellen has said the debt limit needs to be raised by Oct. 18.
Photographer: Chip Somodevilla/Getty Images
It can be hard — and often outright painful — to follow the debt-ceiling drama in Washington. Republicans want Democrats to pass an increase to the debt limit on their own but are filibustering to prevent a simple-majority vote? House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer won’t raise it through a reconciliation bill? Can anything get done before Treasury Secretary Janet Yellen’s Oct. 18 deadline?
Fortunately, there’s a simple way to gauge how panicked bond traders are about an unthinkable U.S. default. It involves looking at the rates on Treasury bills that mature around when the government will run out of resources to meet the nation’s commitments. If there’s cause for concern, then the T-bill curve will “kink” around the drop-dead date, with investors demanding a greater premium to own obligations that could be in jeopardy if lawmakers can’t get their act together.