The U.S. Debt-Limit Increase Is Mostly Earmarked for Use Already

Alex Harris

14 Oct 2021, 06:01 AM IST

(Bloomberg) -- The U.S. Treasury has already mapped out how to use up most of the half-a-trillion-dollar debt-ceiling increase that Congress has passed, so any let-up in money-market pressures is likely to be brief.

While the $480 billion of extra capacity at first glance seems like a big number, it will almost immediately shrink after Joe Biden signs it into law. That means investors who park their funds in short-term instruments are unlikely to get the kind of boost to Treasury bill supply that they’ve been craving for most of this year, keeping rates in associated markets tethered close to zero.

One of the biggest bites out of the new limit will come from the so-called extraordinary measures that Treasury Secretary Janet Yellen has been using to keep things ticking over. Replenishing the coffers that these have drawn on will use up more than half of the planned limit increase, with the Treasury having tapped some $301 billion of the $350 billion available, as of Oct. 6. These kinds of measures can, of course, be utilized once more as a new still-to-be-determined X-date for the ceiling comes around some time in December, but for now they have to be accounted for.

On top of that, the Treasury has also conducted a slew of coupon-bearing debt auctions and scheduled new sales of cash management bills, and once these settle the debt-limit headroom is set to shrink even more, although paydowns of existing debt will offset some of that.

Some Back of the Envelope Calculations
The ceiling is being increased by $480 billion. Somewhere around $300 billion, give or take, will be allocated to funding the extraordinary measures already taken. This Friday will see some $93 billion of coupon debt being settled, while for settlement next week there is a $35 billion cash management bill that was sold Wednesday, a $60 billion cash management bill coming Thursday and a combined $50 billion of 4- and 8-week bills on the same day. These will all use up capacity. Paydowns of current bills will offset some of that, and the net effect of bill settlements from Oct. 7 to Oct. 15 will actually create around $86 billion of headroom. But that respite will be temporary, as the Treasury said Wednesday that it intends to issue several “ad hoc” cash management bills over the next few weeks totaling between $175 billion and $225 billion, with maturities ranging between three and seven weeks. On top of that, it will have its regular bill auctions too, and the department has already boosted its weekly one-month bill to $25 billion from $10 billion the prior week.

Some Back of the Envelope Calculations

The ceiling is being increased by $480 billion.
Somewhere around $300 billion, give or take, will be allocated to funding the extraordinary measures already taken.
This Friday will see some $93 billion of coupon debt being settled, while for settlement next week there is a $35 billion cash management bill that was sold Wednesday, a $60 billion cash management bill coming Thursday and a combined $50 billion of 4- and 8-week bills on the same day. These will all use up capacity.
Paydowns of current bills will offset some of that, and the net effect of bill settlements from Oct. 7 to Oct. 15 will actually create around $86 billion of headroom.
But that respite will be temporary, as the Treasury said Wednesday that it intends to issue several “ad hoc” cash management bills over the next few weeks totaling between $175 billion and $225 billion, with maturities ranging between three and seven weeks.
On top of that, it will have its regular bill auctions too, and the department has already boosted its weekly one-month bill to $25 billion from $10 billion the prior week.