Debt-Ceiling Fears Drive Early June T-Bill Yields Above 7%
Comment of the Day

May 24 2023

Commentary by Eoin Treacy

Debt-Ceiling Fears Drive Early June T-Bill Yields Above 7%

This article from Bloomberg may be of interest to subscribers. Here is a section: 

Treasury-bill yields slated to mature early next month surged, driving them above 7% amid building concern that talks in Washington will fail to resolve the debt-ceiling crisis and the US might default.

The rate on the June 1 and June 6 maturities soared more than a percentage point on the day, while others for early June also climbed sharply. By comparison, the earliest June tenors yield around 4 percentage points above the May 30 issue. 

Eoin Treacy's view

The Fed minutes reflected a split decision between hiking and holding rates. They are not talking about cutting rates but they seldom do until they are actually doing it. The next question is how quickly a deal on the debt ceiling will be made.

The stock market is only beginning to take notice of the imminent deadline but even then, closed off the lows. No one really believes US politicians are reckless enough to default just to make a point. The ultimate discussion about fiscal hole could take years to negotiate and will inevitably result in higher retirement ages and healthcare spending reform.

The more pressing issue is if bond yields don’t come down soon, the banking sector is going to continue to experience stress. The regional Banks Index continues to roll over and US Bancorp, the nation’s 5th largest has failed to rally and remains on its lows. That suggests there is still plenty to worry about in the US financial system.

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