Invesco's Mandeville on Debt Ceiling
Invesco writes "US Treasuries contend with debt ceiling deja vu." Subtitled, "Extraordinary funding measures are running out, and concerns are evident in Treasury yields," the piece explains, "The so-called 'extraordinary measures' that are currently being used to fund the US government are projected to run out in early March. With this 'drop-dead' date quickly approaching, it appears that the Treasury bill market is already reacting to the potential disruption. Below I answer some frequently asked questions about the debt ceiling, extraordinary measures and the impact on Treasury markets." Portfolio Manager Justin Mandeville writes, "When is the government likely to run out of funds? US Treasury Secretary Steven Mnuchin has stated that the US Treasury has sufficient cash to last through the end of February before it exhausts its extraordinary borrowing measures.... This has caused market participants to be cautious about investing in Treasury bills that mature in early March. What has been the market reaction? Concern that the drop-dead date may occur in early March is already evident in US Treasury yields. The yield on Treasury bills due March 1, 2018, is higher compared with bills due Feb. 22, 2018, creating a 'kink' at the front end of the Treasury yield curve. Investor concerns remained evident at the most recent auction of the 1-month Treasury bill maturing March 8, 2018. The auction resulted in a yield of 1.48%, which is 28 basis points higher versus the Treasury bills maturing on Feb. 22, 2018.1 These elevated yields suggest that market participants are concerned that Treasury bills may be susceptible to a payment delay by the Treasury, and have been managing their exposures accordingly." Finally, he adds, "Invesco Fixed Income believes there will likely be a debt ceiling agreement that allows the government to continue to fund itself and honor its obligations. However, we think an agreement is likely to be last minute — with timing potentially in late February.... Following the completion of a debt ceiling deal (our base case), we believe the market's focus will likely turn to Treasury bill supply."
