The U.S. Treasury plans to hold auctions Monday for slightly more than $50 billion in 3- and 6-month bills, officials told primary dealers in New York Friday.
The dealers met with Treasury and Fed officials at the New York Fed. The officials typically speak with bankers ahead of quarterly refundings but this meeting was of special interest because there has, as yet, been no movement to raise the debt ceiling.
The Treasury has had plans to roll over a total $87 billion of maturing debt next week, and sources have told CNBC that Treasury believes those auctions would not push U.S. borrowing through the debt ceiling, because it would be rolling over existing debt, not issuing new debt. Monday's auction will go ahead as expected, since it is the last day before the U.S. would lose borrowing authority. Borrowing authority is the ability to raise financing through bill, note and bond auctions.
Morgan Stanley's Jim Caron said three alternative options for auctions were discussed at the meeting at the Fed. He said they discussed delaying the August refunding and issuing a short-dated cash management bill that could be rolled over, as needed.
They also discussed rescheduling auctions until after the debt ceiling is increased, or holding auctions of much smaller sizes, but dealers said there could be liquidity problems. They also could announce a conditonal refunding, using when issued trading, which dealers dismissed because of the timing uncertainty.
Monday's auctions come as the T-bill market has become extremely volatile. Yields spiked Friday, as investors shunned the short-term paper. "Essentially what's happening is a lot of short-term money managers, even though there's zero probabilty of a default..they just don't want to invest their money into these assets that may have a problem, even though I think the risk is zero," Caron said.
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