Yields on Near-Term T-Bills Surging as U.S. Faces Debt Ceiling Crisis

American Eagle on one USA dollar bill

Four-Week T-Bills Priced at the Highest Yield Since 2008

The Donald Trump administration has a serious issue to address this month. Yields on short-term Treasury bills (T-bills) are continuing to surge ahead of the approaching debt ceiling deadline, as T-bills face heavy selling pressure. Meanwhile, demand for new bills is remaining low.

In a recent sale of $20.0 billion worth of four-week T-bills, the securities were priced at a yield of 1.3%, which is the highest level of yield seen since September 2008, when the Great Recession hit.  Back in 2008, when one of America’s “too-big-to-fail” banks collapsed, investors worried that the country would default on its debt. Today, similar fear is once again killing investor confidence in U.S. Treasuries.

America is fast approaching its debt ceiling deadline. The government, ideally, has less than a month to make a decision.

If the deadline passes and the debt ceiling is not raised, there’s a chance that the government will not have enough money in its coffers to pay off its near-term liabilities—most importantly, the T-bills maturing in October, around the same time of the debt ceiling deadline.


In fact, a significant dislocation in yields is being witnessed for mid-October T-bills, when compared to similar bills maturing a month before or after the deadline.

Garfield Reynolds of Bloomberg says that, even though there is a low likelihood of default, the uncertainty is causing a lot of volatility in the markets. Commenting on Tuesday’s pricing of T-bills at a multi-year high yield, Reynolds said, “What it does say is the paper sold Tuesday is relatively less attractive than it has been for a long time — arguably because of the likelihood of a period of much greater price volatility — which is something many bill investors are looking to avoid.”

Treasury Secretary Steven Mnuchin has indicated that the government will likely raise the debt ceiling, although it still remains uncertain whether the decision would be taken in a timely fashion, given that the Trump administration already has its plate full this month with tax reforms, the Deferred Action for Childhood Arrivals (DACA) program, Hurricane Harvey aid, and government shutdown issues under consideration.


Why Yesterday’s T-Bill Turmoil Is More Bad News For Trump,” Zero Hedge, September 6, 2017.