House Speaker John Boehner said the GOP would offering a temporary increase in the debt ceiling in return for discussions with President Obama on other budget and deficit issues.
And President Barack Obama is willing to look at the proposal to extend the debt ceiling but insists that lawmakers end the government shutdown as well, according to a White House official.
"It is important to remember that the debt ceiling is an arbitrary limit set by Congress—it can be changed at any time and can even be suspended as it was for three months earlier this year," wrote Gary Thayer, chief macro strategist at Wells Fargo Advisors. "Looking back, Congress has always raised the debt ceiling when it was necessary to do so—in fact, Congress has raised the debt ceiling 27 times in the past 40 years. "
President Obama and congressional leaders were set to meet on Thursday for further discussions.
"We've had a situation with a technically oversold market and down nearly 5 percent from 2-1/2 weeks ago… so the market is ripe for a bounce higher," said Randy Frederick, managing director of trading and derivatives with the Schwab Center for Financial Research. "But people are tentative to positive news and things can change very quickly."
The dollar rose to a two-week high against a basket of major currencies. Treasury yields rose to their highest in more than two weeks. Benchmark 10-year notes were last down 12/32 in price to yield 2.71 percent, the highest since September 23.
Meanwhile, the Treasury sold $13 billion in 30-year bonds at a high yield of 3.758 percent. The bid-to-cover ratio, an indicator of demand, was 2.64, versus a recent average of 2.47.
Treasury Secretary Jack Lew testified on the debt limit before the senate panel, saying the impasse in Washington was hurting the U.S. economy and urged Congress to raise a cap on government borrowing to keep the nation from defaulting on its debt.