The U.S. Treasury sold $50 billion of four-week bills, kickingoff what's forecast to be the largest month of short-term debtsales in seven years, after issuance shrank before the deadline toreach a compromise on the U.S. debt ceiling.

The $225 billion of bills expected to be sold this month is themost since the Treasury stepped up issuance during the financialcrisis to help bail out banks as demand for the safest assetssurged. Tuesday's sale is the biggest since December 2014.

The $50 billion of four-week notes sold at a rate of 0.07percent, as investors submitted bids amounting to 3.46 times theamount of debt issued, a measure known as the bid-to-cover ratio.The supply comes as regulations designed to protect money-market mutual fund investorsfrom unforeseen losses are pushing more asset managers into U.S.government securities.

“It's indicative of the market's demand for bills after twomonths of pretty steep pay-downs,” said Thomas Simons, agovernment-debt economist in New York at Jefferies LLC, one of the22 primary dealers that are obligated to bid U.S. debt sales. “Oneof the reasons it went so well was it was presenting some decentyield.”

Last week the White House and top lawmakers from both partiesreached a deal to avoid a default after Nov. 3, the date TreasurySecretary Jacob J. Lew had expected the U.S. would reach its debtlimit. The accord will give the government new borrowing capacityuntil March 2017 and includes a two-year agreement on spending,aides from both parties said.

Excluding the Oct. 20 bill offering, when investor concern aboutthe debt ceiling pushed the yield to 0.12 percent, the rate attoday's sale was the highest for the securities since February2014, amid debt-limit talks going on at that time. The U.S. sold $5billion of four-week securities on Oct. 27 at a rate of 0.01percent. Offerings averaged $36 billion for the first eight monthsof the year.

The bill market shrank 4.6 percent, to $1.36 trillion, inSeptember, curtailing the amount of the shortest-term Treasury debtoutstanding to the smallest since August 2008.

Citing the Treasury's forecasts of $344 billion in net borrowingin the fourth quarter and $165 billion in the first three months of2016, JPMorgan said in a note to clients published Tuesday that theU.S. will increase the amount of bills outstanding by $225 billionthis month, the most since November 2008.

The impact of the debt ceiling on issuance, with the suddenwithdrawal and return of supply, may add to volatility in the billmarket as this month's deluge of sales continues.

“We're going to see a little more gyration when the supply hitsthe market,” Simons said. “Even though there is strong demand forit, it all coming at once can cause some minor digestiveissues.”

–With assistance from Liz Capo McCormick in New York.

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