Debt fight dings status of US Treasury bills
By Richard Leong, ReutersNEW YORK--The safe-haven reputation of U.S. Treasury bills took a beating during the latest debt ceiling fight in Washington, and it won't be regained soon, even after the last-minute deal to avert a threatened default.
October 19, 2013, 12:42 am TWN
The temporary agreement to lift the government's debt limit may only pave the way for another political struggle between President Barack Obama and Republican lawmakers in early 2014 over the federal budget and borrowing levels.
While others measure the toll on the economy from the 16-day federal government shutdown, Wall Street is fretting over the future appetite for U.S. debt and its effect on federal borrowing costs.
During the next three-and-a-half months before the next debt ceiling deadline, the U.S. government might pay higher interest rates on its short-term debt.
Before the shutdown, the Treasury was selling one-month debt at next to nothing. The rise in yields as a result of the crisis will cost the Treasury an estimated $56 million more in interest payments than it would have incurred had this month's auctions been sold in September.
While some one-month T-bill rates saw their yields decline to 0.02 to 0.03 percent after jumping above 0.70 percent less than 24 hours earlier, bills maturing in February still showed modestly elevated yields. If Washington repeats the battle that ended on Wednesday, bill rates would likely jump again.
“There's a fundamental change in their risk profile. There's a growing lack of confidence. It's going to be problematic,” said Tom Nelson, chief investment officer at Reich & Tang, a New York-based cash management firm that oversees more than $33 billion in assets.