Treasury bill market hit by shutdown

Investors stepped back from the Treasury bill market this week over concerns that the US government may delay interest payments this month as Washington appears well away from striking a deal that would raise the federal debt ceiling.
Treasury bills expiring at the end of October briefly traded above 18 basis points on Friday, having been quoted around 3bp a week ago.
After an early surge, bill yields were back at 13bp at mid-morning in New York.
Meanwhile, premiums insuring against a US default in the sovereign credit derivatives market rose to their highest level since July 2011 when Washington previously tussled over raising the debt ceiling.
The Treasury department has warned that it will run out of borrowing authority by October 17 and will have about $30bn in cash to pay maturing debt if Congress does not raise the $16.7tn debt ceiling.
The Congressional Budget Office expects that, between October 22 and October 31, the Treasury will run out of cash, raising the spectre of payments for maturing US debt being delayed.
The US Treasury said on Thursday: “The fact that yields on Treasury bills that mature at the end of October are higher than bills that mature immediately before or after might suggest nascent concerns about possible delays in payments on those bills.”
Investors, led by money market funds, who hold about $475bn of Treasury bills, pared their holdings that mature this month and during the early part of November as Washington remains divided over fiscal policy.
Marc Chandler, strategist at Brown Brothers Harriman, said the credibility of an actual technical default by the US was very low but, in the event it did occur, the capacity would be incredible for financial markets.
“Our conversations with clients reveal they are sticking to the sidelines until we see a resolution of the debt ceiling issue,” he said.
The one-year US CDS contract traded at 64bp on Friday, the highest level since July 2011, when it touched 80bp, according to Bloomberg data.
The contract was quoted about 11bp at the start of September.
The moves in default premiums in what is a thinly traded market were seen as being opportunistic.
“Whoever is trading these US CDS is just trying to game the system and make a quick coin,” said Adrian Miller, director of fixed income strategy at GMP Securities.
“No one in their right mind really believes the US will default two weeks from now,” he added. “These people are not really trying to guard their Treasury portfolios.”
Gennadiy Goldberg, US strategist at TD Securities, said: “US CDS are not very liquid instruments and they are traded in euros. It doesn’t take a lot of trading to really push those levels higher.”

Fonte: FT