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U.S. Debt Ceiling Concerns Drive Investors to One-Month Treasury Bills

Investors are becoming increasingly concerned about the possibility of the U.S. Treasury Department hitting its debt limit in the coming months. As a result, they are shunning certain Treasury bills and seeking low-risk alternatives to park their cash.

U.S. Treasury Department
U.S. Treasury Department

Congress Faces Catastrophic Default Risk

The nation risks a catastrophic debt default if Congress does not raise the U.S. debt ceiling. Analysts predict the Treasury will likely run out of funds in July or August.

One-Month Bill Yields Tumble Amid Debt Worries

Investors are avoiding debt due during this risky timeframe and looking for safe places to park cash. This has led to one-month bill yields dropping and the spread between one-month and three-month bills expanding to its widest level since 2001.

Treasury Bill Demand Increases Due to Banking Concerns

The failure of two regional banks, including Silicon Valley Bank, has heightened demand for Treasury bills as investors worry about the safety of uninsured bank deposits. However, the Treasury has reduced its issuance of short-term debt as it approaches its debt limit.

Nervous Market Seeks Alternatives Amid Limited Supply

As the market grows increasingly anxious, investors are avoiding debt ceiling issues and looking for alternatives, but bill supply continues to be cut. Gennadiy Goldberg, a senior interest rate strategist at T.D. Securities highlight this challenging situation.

One-Month and Three-Month Bill Yields Diverge

Yields on one-month bills have dropped to 3.362%, while yields on three-month bills have increased to 5.113%. The gap between the two has widened to a record 175 basis points.

Investors Await Treasury Bill Issuance Increase

Once the debt ceiling is raised, the Treasury is expected to increase bill issuance. Until then, investors will likely continue using the Federal Reserve's reverse repurchase agreement facility, which currently sees daily demand of around $2.25 trillion.