Debt-Ceiling Concerns Shift Bond Traders’ Focus to T-Bill Deluge

Fears that the U.S. debt ceiling won’t be raised are likely to shift bond traders’ worries about what a hike might mean for money markets.

White House, Republicans Agree in Principles on Debt Limit

The U.S. Treasury Department plans to issue more than $1 trillion (approximately ¥140 trillion) of treasury bills (TBs) by the end of the third quarter (third quarter), re-expanding its cash balance soon. Estimated. U.S. cash balances are now at $39 billion, the lowest since 2017.

U.S. Treasury Cash Balance Drops to $38.8 Billion, $67 Billion Remaining in Special Measures (1)

Such large issuances are likely to absorb significant liquidity from financial markets. Market pressure is likely to increase as the Fed raises interest rates and shrinks its balance sheet.

Short-term U.S. short-term bond yields could fall on the back of a deal in principle between the White House and House Republican negotiators over the U.S. debt ceiling, but as we try to see what happens next. Yield declines may be limited.

“TB has been affected by uncertainty and will react as expected to a deal,” Kevin Flanagan, head of fixed income strategy at Wisdom Tree Investments, said Wednesday. “Yields will fall from high levels, but the decline in yields will be limited as the Treasury increases issuance,” he said.

news-rsf-original-reference paywall">Original title:Debt-Ceiling Relief May Be Short as Focus Turns to T-Bill Deluge(excerpt)