Growing worries over U.S. debt ceiling send 1-month T-bill yield tumbling

Traders piled into the 1-month Treasury bill on growing concerns about a debt-ceiling standoff Thursday, sending the bill’s rate briefly plummeting by more than half of a percentage point.

The 1-month rate
touched an intraday low of 3.215%, down as much as 53.4 basis points from Wednesday’s closing level of 3.749%, according to Tradeweb. Its decline was subsequently pared to 21.8 basis points, leaving the rate at 3.531% as of 1:30 p.m. New York time, which is the lowest level since early December.

The moves came amid growing concerns that “the debt-ceiling crisis has been elevated,” according to Tom di Galoma, managing director and co-head of global rates trading at BTIG LLC.

House Republicans on Wednesday unveiled a plan that would cut government spending in exchange for raising the limit on government borrowing. The White House and congressional Democrats have called for an increase in the ceiling without conditions.

Concerns about the U.S. debt ceiling have driven spreads on credit-default swaps, an instrument that can be used to insure against the risk of default, to their widest in more than a decade. Meanwhile, JPMorgan analysts said that, after meeting with around 1,000 attendees and 1,600 virtual participants at the IMF/World Bank spring meetings, “outlier” views are as high as 35% that the U.S. will default on Treasury obligations.

Read: Debt-ceiling standoff: Here’s what’s next as Democrats and Republicans warn about U.S. default

Also see: GOP Plan Raises Debt Ceiling by $1.5 Trillion, Cuts Spending

“Everyone is piling into the shortest bill possible, thinking that’s the safest instrument to be long in, given the fact that the debt ceiling is on wobbly ground,” di Galoma said via phone.

“While there are still a lot of negotiations that need to go on, tax receipts haven’t been all that robust and a lot of firms that previously thought the government could pay its bills through August, are now thinking that the government can pay its bills through June,” he said.

As of Thursday afternoon, Treasury yields were broadly lower in afternoon trading, led by the drop in the 1-month rate. Meanwhile, all three major stock indexes


were also lower.

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