Treasury Bills Climb as Traders Bet Congress Will Pass Debt Deal

Treasury bills maturing in the first half of June rallied as trading resumed following the Memorial Day holiday after a deal to lift the debt ceiling eased concern over the prospect of a calamitous US default.

Yields on securities payable in early June — seen as most at-risk because Treasury Secretary Janet Yellen has said the government will exhaust its cash as soon as June 5 — resumed their drop on Tuesday, and others due in the first half of the month followed suit. Bills due June 6 yielded 5.2%, down from about 7% at one point last week.

US President Joe Biden and House Speaker Kevin McCarthy have expressed confidence that a deal to suspend the debt ceiling while capping discretionary spending will pass Congress in the coming days, and approval gained early support from prominent members of each party’s moderate and pragmatist wings.

Treasury Bills Curve in Focus | Yields have retreated as debt-limit concerns ebb

“We will be watching the vote counting over the next few days, hoping no insurmountable political obstacles impede its eventual passage,” said John Velis, a strategist at BNY Mellon. “Should it look as if the deal will move toward passage during the upcoming week, we would expect the curve to continue to normalize – just in time for a deluge of US Treasury issuance.”

Yields on some bills topped 7% last week as investors steered clear of at-risk securities. The price on credit default swaps — derivatives that allow investors to insure against non-payment — peaked well above levels seen in the 2011 debt limit episode, before sliding Tuesday.