With peculiar consequences.
Today the bond market had its second bout of nervousness about a US default. It showed up at a ‘dismal’ auction by the US Treasury Department of four-week bills. And the one-month yield shot up to 1.30% from 0.96% on Friday. That’s a huge one-day move. These bills mature on October 5 – after the official out-of-money date on September 29, that the Treasury department has announced to Congress.
September 29 is the official deadline for Congress to raise the debt ceiling so that the Treasury can borrow more so that it can spend the money that Congress ordered it to spend.
If Congress fails to raise the debt ceiling, and if the US Treasury runs out of ‘extraordinary means’ with which it has been scrounging up money from other internal sources, and if it then decides to default on its debt service, rather than on payment obligations such as Congressional salaries and the like, the Treasury would then not redeem those one-month bills or any other maturing debt on October 5, and investors would have to wait for their money until Congress gets it act together.
This post was published at Wolf Street by Wolf Richter ‘ Sep 5, 2017.