(Adds comment from congressman, updates final prices)
July 21 (Reuters) - U.S. Treasury bills due to be repaid in October faced their worst weekly performance since March on concerns that debt payments may be delayed if Congress fails to raise the nations debt limit before the government runs out of money.
The Congressional Budget Office said last month that Congress would need to raise the debt limit by early to mid-October to avoid a default.
Investors are concerned that efforts to raise the debt ceiling will come down to the wire as disagreements among Republicans on healthcare legislation show a lack of consensus among lawmakers.
"I think that the healthcare bill is the catalyst for it this week," said Thomas Simons, a money market economist at Jefferies in New York. You can see a very significant discount for October bills."
Discord over healthcare is also pushing back budget negotiations with legislators due to take recess in August, which will delay activity until they return in early September.
Treasury Secretary Steven Mnuchin has repeatedly urged lawmakers to act soon on raising the debt ceiling, and not to hold it hostage to other issues. But some influential congressional Republicans, including Representative Bill Huizenga, argue the debt ceiling should not be segregated from the wider debate about overall government spending.
"Congressman Huizenga wants to see forward progress on spending reforms," his office said in a statement. "With Republicans in control of all three levers of government that influence the process, we should take every opportunity, including the debt ceiling, to rein in and prioritize federal spending."
Yields on three-month Treasury bills, which are due to mature on Oct. 19, rose to 1.16 percent on Friday, near the highest levels since October 2008, and more than the 1.10 percent yields paid on six-month debt.
Longer-dated debt normally pays higher returns than shorter-dated bills, with an inversion in the yield curve reflecting that investors are concerned with being repaid in October.
The three-month yields saw their largest weekly increase since March 3 on Friday, having jumped from 1.03 percent on July 14.
Investors may also be avoiding October maturities due to the early notice that it is the most likely month that the government will run out of funds.
I think the main reason the markets starting to price in some debt ceiling risk is that we dont normally have a fairly accurate estimate of the X date this far out, said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
The early October timeframe has extra credence as large federal outlays are due on Oct. 2, Goldberg said.
Funding markets are not yet reflecting concern about the debt limit as a large portion of the market is overnight loans, though if no resolution is reached by October that is likely to change.
When negotiations over raising the debt ceiling came down to the wire in October 2013 investors pulled cash from the repo market on concern about receiving debt maturing that month as collateral, adding to pressure on bond yields.
(Reporting by Karen Brettell; editing by Andrew Hay and Tom Brown)