Short-term treasury bill rates on the move

Oct. 8, 2013 at 5:27 PM
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WASHINGTON, Oct. 8 (UPI) -- The short-term treasury bill market is showing signs of strain as Washington comes closer to a debt ceiling deadline, an analysis of the market shows.

The Washington Post reported Tuesday that interest rates for 30-, 60- or 90-day treasury bills have soared recently, a sign investors are demanding higher returns for the risk of sinking their money into bonds that could go into default should lawmakers fail to raise the debt ceiling by Oct. 17, when the Treasury Department says the government will not have enough cash on hand to pay all its bills.

From a financial perspective, these loans represent a short-term piggy bank with very low payoffs that cycle around quickly. On Sept. 30, the interest rate on treasury bills maturing on Oct. 17 was 0.03 percent -- almost too small to notice, the Post reported.

However, rates have recently started to move. On Tuesday, short-term interest rates were at 0.297 percent.

"As the X Date approaches without action on the debt limit, one risk is that buyers of government debt will be less likely to participate in treasury auctions," said a report from the Bipartisan Policy Center.

Investors still willing to take the risk will be more likely to "demand higher interest rates, increasing the cost of servicing the existing debt. The amount of debt maturing during this period will increase as treasury schedules additional short-term auctions in the days ahead," the report said.

To put that in perspective, 0.297 percent is a far cry from a crisis, the Post reported. But short-term loans are still a critical part of the financial system. They are used by corporations as a place to park money short term, serve as collateral for loans and serve as a cash drawer that provides liquidity for the federal government.

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