U.S. Treasury bill yields in late October, early November

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Aug 11 - Some U.S. Treasury bill yields are beginning to reflect concerns that lawmakers may wait until the last minute to increase or suspend the debt ceiling, after a budget blueprint failed to contain a provision to resolve the issue.

The Democratic-controlled U.S. Senate approved a $3.5 trillion infrastructure bill on Tuesday and immediately kicked off debate on a massive expenditure blueprint, but did not include an increase or suspension of the debt limit.

'The fact that the debt limit was not on the budget blueprint really sets up for quite a contentious battle over another increase, said Jonathan Cohn, a trading strategist with Credit Suisse in New York. As a result, "we are now starting to see some late October, early November discounting in bills in the late November area.

The government's default ceiling was lifted last month. This Treasury is expected to be able to get into October or later using extraordinary measures.

On Tuesday, Senate Democrats signed the pledge not to vote to raise the nation's borrowing capacity when it is exhausted in the autumn.

'It just makes it more likely that we get toward the eleventh hour scenario, said Tom Simons, a money market economist at Jefferies in New York City. 'When this happens, there tends to be a kink in the yield curve.

Investors are likely to avoid bills that mature soon after the Treasury is likely to run out of cash, even if the chances of default are small. That means that yields on these issues can rise above longer-dated debt yields, which is unusual in the Treasury yield curve.

So far moves are short-dated and short-dated yields are largely pinned around the 5 basis point value level, which is the rate investors can earn by borrowing Treasuries from the Federal Reserve overnight as part of its reverse repurchase agreement facility.

Bills maturing in late October and early November, however, when the Treasury is most likely to face funding pressure, have crept higher and yielding around 5.5 basis points. Those maturing on October 1, by comparison, yield around 4.7 basis points and those due in December, after the issue is expected to be addressed, yield from 4.7 to 5.3 basis points.