The Treasury bill market is pricing in a shortage of notes in November as the threat of a debt ceiling crisis grows.
Despite the recent legislative passage of a 10-year infrastructure investment plan, Congress and the Biden administration are no closer to an agreement on lifting the debt ceiling.
We continue to monitor the situation in Washington and the pricing at the front end of the yield curve as well as Treasury issuance.
The Treasury Department has resorted to limiting issuance of fixed-income securities to remain under the debt ceiling imposed by Congress.
That ceiling was temporarily raised on Oct. 14, but that agreement merely put off the threat of the government running out of money until sometime in December.
Because of the short supply, Bloomberg reports that the market is bidding up prices such that one-month T-bill rates have been pushed to 0.03%, below the 0.05% award rate of the Federal Reserve’s overnight reverse repurchase agreement facility.
T-bill rates for securities maturing in the latter half of December increase to 0.06%, with a presumption of a political settlement early in the month.
All this depends, of course, on the ever-evolving debate over the Biden administration’s proposed Build Back Better spending program, the willingness of the Senate to change its procedures, or the willingness of Congress to eliminate the artifact of the debt ceiling.
In this environment, the Treasury Department finds itself implementing non-conventional practices until those options run out.