US default risk has flatllined for weeks, market risk has leaked to record lows, and Treasury Bills have ‘behaved’… until now. The last two days have seen a sudden aggressive spike in the yields of T-Bills around mid-October, inverting the yirld curve as debt-ceiling anxiety starts to build quietly away from NFLX and AMZN shares.
And the yield curve has inverted as analysts start to consider the chances of a two-week government shutdown as a base-case…
For now there is no perturbation in the VIX curve for the same period.
This move should not be a total surprise to readers as the CBO warned recently that Treasury will run out of cash in mid-October.
With Trump tax reform far on the backburner, the CBO reminded that in just 3 months a more material threat is facing the US: according to the latest CBO calculations, the Treasury will “most likely” run out of cash in early to mid-October, unless the most polarized Congress in history raises the debt ceiling.
This is what the CBO just said in its latest report on the “Federal Debt and the Statutory Limit”, released moments ago.
If the debt limit is not increased above the amount that was established on March 16, 2017, the Treasury will not be authorized to issue additional debt that increases the amount outstanding. (It will be able to issue additional debt only in the amount of maturing debt or the amounts cleared by taking extraordinary measures.) That restriction would ultimately lead to delays of payments for government programs and activities, a default on the government’s debt obligations, or both. CBO estimates that without an increase in the debt limit, the Treasury, by using all available extraordinary measures, would most likely be able to continue borrowing and have sufficient cash to make its usual paymentsuntil early to mid-October of this year.
