Treasury-Bill Buyers Shy Away at Auction as Debt-Limit Battle Drags On

(Bloomberg) -- Lackluster investor appetite for eight-week U.S. securities at an auction Thursday suggests that uncertainty surrounding the debt ceiling is starting to weigh on market participants.

The U.S. government’s $35 billion auction of eight-week bills attracted the weakest demand at that tenor since the Treasury introduced the security in October, with just 2.45 bids submitted for every security on offer. Indirect bidders -- a category of buyers that includes foreign central banks -- took just 35.7% of the auction, which was the least since June 6. The sale was awarded at a yield of 2.12%.

“It seems that concerns about a mid-September debt ceiling event, whether it be default risk or auction calendar disruption, caused investors to shy away from the eight-week,” Jefferies money-market economist Thomas Simons wrote in a note.

Treasury Secretary Steven Mnuchin said in an interview on CNBC Thursday that under one of his department’s most conservative estimates, the U.S. will be at risk of defaulting on payment obligations in early September -- before Congress is scheduled to return from its summer recess on Sept. 9. However, strategists have said the point at which the government finally exhausts its current borrowing authority could be some time in October.

The T-bill market has been showing some signs of concern in recent weeks, with small pricing dislocations appearing around securities maturing close to potential crunch dates in September and October. While these kinks have remained relatively muted by historical standards, market observers have been raising the ceiling issue as a concern, and the tepid reaction to Thursday’s auction suggests growing disquiet among buyers.

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Greg Chang

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