UPDATE 1-U.S. 1-month bill rates highest since 2011 debt fight
* U.S. 1-month T-bill rates highest since August 2011
U.S. to sell $30 billion in 1-month bill supply
By Richard Leong
NEW YORK, Oct 8 (Reuters) - Interest rates on U.S. one-month government debt rose on Tuesday to their highest levels since August 2011 as investor anxiety intensified over whether the government would reach a deal to avert a default next week.
One-month Treasury bill rates have reached levels not seen in more than two years during the first debt ceiling showdown between President Barack Obama and top Republican lawmakers.
As its short-term borrowing costs have risen, the U.S. Treasury Department will sell $30 billion in new one-month bills at 11:30 a.m. (1530 GMT) on Tuesday, followed by a $30 billion auction of three-year notes at 1 p.m. (1700 GMT).
Worries over the United States possibly skipping its debt payment obligations after Oct. 17, when the federal government is expected to exhaust its $16.7 trillion statutory debt limit, caused the interest rates on one-month Treasury bill to rise above the rates on one-month loans between banks.
The one-month T-bill rate climbed above the fixing on the one-month London interbank offered rate for first time in at least 12 years, according to Reuters data.
"The markets now view lending money the U.S. for one month riskier than lending money to a bank for one month," said Guy LeBas, chief fixed-income strategist with Janney Montgomery Scott in Philadelphia.
The one-month T-bill rate due Oct. 31 was last quoted at 0.2200 percent, compared with the one-month Libor was fixed earlier at 0.1740 percent.
While the interest rates on T-bill issues in October to mid-November have jumped on default worries, the rates in the second-half of November and beyond have stayed in the single-basis-point range.
"This event of the one-month T-bill yields rising above 1-month Libor rates, represents a signpost of increased risk rather than a large market move," LeBas said.