Although there is a lot of money wandering around in the financial system, many investors have not been actively involved in recent Treasury bond issues.
This apathy stems from the uncertainty of the so-called X day, the date on which the US Treasury exhausted its borrowing authority under the debt ceiling. In addition, the Treasury is also somewhat confused about supply, and investors have invested a record $1.087 trillion in the Fed's reverse repo operation to earn slightly higher yields.
Extended reading: the use of the Fed's reverse repo tool surged to a record high of $1.087 trillion
On Thursday, the Treasury issued $40 billion of four-cycle Treasury bills with a winning yield of 0.045%, while the winning yield of $35 billion of eight-cycle Treasury bills was 0.055%. Jeffery said demand for the two issues was only average compared with recent weeks, especially when the department unexpectedly announced a reduction in the size of some Treasury bond auctions ahead of Thursday's offering.
"the announcement focuses on Oct. 15 as a potential date for the debt ceiling that the Treasury is worried about," Jeffery economist Thomas Simons wrote in a note to clients. "
Treasury bills maturing in October and November-in line with Congressional Budget Office forecasts-show relatively higher yields compared with other Treasuries.
The Treasury cut three-month and six-month Treasury issuance by $3 billion, respectively, to stay below the debt ceiling. At the same time, the Department will issue $50 billion of 57-day cash management notes and close the 42-day issue.
Money market traders are beginning to worry that the debt ceiling dispute is likely to last until the last minute, although they acknowledge that it will eventually be resolved.