Yields on October T-Bills Up as Debt Ceiling Deadline Approaches


Selling Pressure Seen on Short Term-Treasuries as Fears of Default Rise

U.S. Treasury Bills, most often used as the proxy for “risk-free” investments, are facing the risk of default—or so believes the market. The yields on Treasury Bills (T-Bills) maturing in October have spiked fears that the American government will default on its short-term debt if the federal debt ceiling is not raised.

The United States is fast approaching the mid-October deadline for its debt ceiling, which is currently set at $19.9 trillion. If the government doesn’t raise the debt ceiling, and the federally mandated upper limit on debt issuance is breached, America will default on its sovereign debt—an event that can strip the country of its “safe-haven” investment status.

Although it’s considered an unlikely event, market participants are fearful that—if the debt ceiling is not raised in time—the U.S. government may not have enough money to make payments on the securities that are coming due in October.

Data shows that the Treasury Bills with October maturity dates are trading at much higher yields than the comparable securities that are maturing in September or November. October T-bills are found to be trading between eight basis points and 20 basis points higher than those maturing in September or November.


The spike in yields hints that investors are selling these government securities, putting downward pressure on their prices. With debt securities, prices and yields move inversely.

The following chart illustrates the dislocation between the Treasury Bills maturing in October and those maturing in other months.

The increase in yields could continue if U.S. money market funds start shedding more securities that mature in October. According to analysts at Citi Research, there’s a chance that the October bill “dislocation can grow further.”

As of the end of July, U.S. money market funds were holding about $63.0 billion worth of Treasury Bills with due dates in October. These funds account for about 20% of the total T-Bills that are due in October.