Investors Holding T-Bills Due Tomorrow Get Nervous

Rates on the shortest Treasury bills surge as Fitch places U.S. credit rating on negative watch.

Investors holding $120 billion of Treasury bills coming due tomorrow are increasingly worried that they won’t get paid.

Rates on the bills, maturing the same day that Treasury Secretary Jacob J. Lew has said the U.S. will exhaust its borrowing capacity, have surged 16 basis points, or 0.16 percentage point, to 0.36 percent this week, according to Bloomberg Bond Trader prices. The securities, issued a year earlier, traded at a rate of negative 0.01 percent as recently as Sept. 26.

‘Close Enough’

“We are close enough to the deadline that, even if the latest headlines suggest the talks are progressing, there will be those risk-averse investors who decide they don’t want to hold those bills,” said John Davies, a U.S. interest-rate strategist at Standard Chartered Plc in London. “For many Treasury bill holders, a delayed payment can cause major problems and that means you have to shift your positioning, which creates selling pressure.”

Initial Conditions

Majority Leader Harry Reid, a Democrat, and Minority Leader Mitch McConnell, a Republican, had suspended their talks earlier while the House was considering its own bill. The House proposal contained almost none of Republicans’ initial conditions for ending the shutdown and raising the debt ceiling.

Record Low

While the S&P downgrade didn’t result in investors charging the U.S. more to borrow, as 10-year yields fell to a record 1.38 percent in July 2012, the move contributed to a global stock-market rout that erased about $6 trillion in value from July 26 to Aug. 12, 2011.

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