Yields on the Treasury's shortest-maturity obligations are getting locked in below zero as the U.S. moves to reduce issuance of bills to keep under the government's debt limit.

The Treasury said on Monday that it would sell US$15 billion of four-week bills Tuesday, down from $20 billion Sept. 15 and $45 billion in July. Wall Street strategists expected bill offerings to fall short of the amount maturing in coming weeks—meaning the government would be paying down debt—as the Treasury exhausts funding measures after reaching its statutory borrowing limit in March.

Yet the size of the reduction came as a surprise, given that quarter-end is approaching, when banks typically look to bolster balance sheets and step away from providing alternatives to bills, such as repurchase agreements. Current four-week bills have closed with negative yields since Sept. 16, the day before the Federal Reserve kept its overnight target near zero.

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