Bloomberg News

U.S. Debt Ceiling Agreement Seen in T-Bill Rates: Reality Check

February 10, 2014

U.S. Debt Ceiling Agreement Seen in T-Bill Rates: Reality Check

The U.S. Treasury in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

Treasury bill rates suggest that investors are betting U.S. lawmakers will agree to raise the nation’s borrowing limit and avoid the budget logjam that resulted from last year’s partial U.S. government shutdown.

One-month bill rates dropped about four basis points to 0.06 percent, even after the Feb. 7 expiration of an agreement that suspended what’s known as the debt ceiling. Treasury Secretary Jacob J. Lew urged Congress last week to extend the federal debt limit and said the nation’s ability to borrow may not last past Feb. 27. One-month bill rates surged as high as 0.45 percent before retreating on Oct. 16, when lawmakers reached agreement to raise the borrowing capacity and remove the risk of default.

“I don’t think anyone’s taking the debt-ceiling situation as if it’s going to be a problem,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “People think there will be a resolution.”

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. The Treasury auctioned a record $84 billion of three- and six-month bills today, giving it greater flexibility after the expiration of the debt-limit suspension. The U.S. also sold a record $50 billion of 72-day cash management bills.

Republican Plan

House Republican leaders are preparing a proposal to raise the U.S. debt limit until March 2015, said a leadership aide. The plan would include an amendment that would restore cost-of-living adjustments for military retirees, which were cut in a December budget deal, and pay for it by extending spending cuts by a year, the aide said.

Republican leaders are considering a vote on the proposal as soon as Feb. 12, said the aide who spoke on condition of anonymity. They’ll present the plan at a meeting of House Republicans today at 5:30 p.m. Washington time, according to an e-mail obtained by Bloomberg News.

Democrats including President Barack Obama and Senate Majority Leader Harry Reid of Nevada insist that it be raised without conditions.

The rate on the three-month bill was 0.06 percent, down three basis points from Feb. 7. The rate on the bill due March 6 was 0.06 percent, after climbing five basis points to 0.095 percent Feb. 7. This year’s average is 0.049 percent.

The Treasury sold $42 billion of three-month bills at a high rate of 0.095 percent and $42 billion of six-month bills at a high rate of 0.11 percent.

The three-month bills were auctioned at the highest ratio of bids to securities sold, 4.49 times, since a Jan. 21 offering and above the average of the last 30 sales of 4.34 times dating back to July 15.

Treasuries

The U.S. 10-year yield fell two basis points to 2.67 percent at 5 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 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, widened 0.06 basis points to 12.06 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 0.3 percent to 67.8 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, was little changed at 1,024.27. The greenback closed at 102.26 yen, from 102.30 on Feb. 7.

Stocks

The Standard & Poor’s 500 Index rose 0.2 percent to 1,799.84. The Dow Jones Industrial Average added 0.1 to 15,801.79 points.

Volatility

The CBOE Volatility Index (VIX), or VIX, fell 0.2 percent to 15.26. Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE index fell to 62.26 from 64.75 on Nov. 7.

Currency swings as measured by the JPMorgan Global Volatility Index fell 0.3 percent to 8.1 percent.

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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