Treasury auction signals potential leeway on June 1 debt ceiling deadline

The Treasury Department announced on Thursday that auctions for certain short-term Treasury bills will continue next week. And some observers have interpreted that as a sign that lawmakers may have some extra time after the June 1 deadline to strike a deal to raise the debt limit and avoid a catastrophic default.

Treasury Secretary Janet Yellen and lawmakers in Congress have been pushing for an agreement to raise the debt limit before June 1, which is cited as the earliest possible date for the Treasury to deplete the debt. “extraordinary measures” it has been using it to pay the government’s bills since the $31.4 trillion debt limit was reached in January.

The Treasury’s Bureau of Fiscal Management announced auctions on Thursday for 3- and 6-month Treasury bills to be held Tuesday, which will formally settle June 1, and a $50 billion cash management bill due in November. lapses.

Typically, the Treasury would not proceed with the auctions unless it is certain it has enough room under the debt ceiling.

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Gennadiy Goldberg, a senior interest rate strategist at TD Securities, told Reuters that the announcements “suggest that the Treasury probably has money to settle the security. They have suggested in the past that they would not announce auctions that they felt lacked the resources to arrange.”

Secretary Yellen this week doubled down on the need to resolve the debt ceiling impasse as soon as possible before the Treasury exhausts its extraordinary measures and stressed that June 1 is the date when funds may run out.

“It is very likely that we will run out of funds to meet all of the government’s obligations by early June and possibly as early as June 1,” Yellen said Wednesday at a conference sponsored by The Wall Street Journal. “We no longer consider it very likely that we will reach the middle or end of June with our resources.”

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Yellen added that the Treasury is trying conference update with more precision about the so-called X date when the government will no longer be able to pay its bills, but noted, “It’s hard to say exactly what day we will run out of resources.”

Uncertainty surrounding the Treasury’s daily cash balances stems from daily fluctuations in tax collections and payments due. The Treasury has communicated with several federal agencies about larger payments due in late May or June to help improve its forecast, but X-date forecasts from outside the government have also warned of an increased risk of breaching the debt limit early in the year. June.

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The Bipartisan Policy Center released its latest X-date forecast on Tuesday, which predicted that the X-date could fall in a range from early June to early August with an increased risk of mistaking the X-date between June 2 and June 13. reaches.

“In early June, Treasury will be skating on very thin ice that will only get thinner by the day,” explained Shai Akabas, executive director of BPC’s Economic Policy Program. “The problem with skating on thin ice is, of course, that you sometimes fall through it.

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“The longer policymakers wait to address the debt limit, the more likely our economic fate will be determined by external actors,” Akabas added. “Credit rating agencies, Treasury investors and global financial markets will not wait forever. Once things turn around, the situation could deteriorate quickly and be difficult to undo, which would immediately negatively impact US consumers and businesses.”

Similarly, it mentions an analysis sent to clients by Goldman Sachs economists June 8 or 9 as the most likely X date, but noting that there is “substantial uncertainty” and emphasizing that there is “certainly a chance that receipts slow more than expected and that the Treasury may be short of cash on June 1 or 2.” ”

Megan Henney and Reuters of FOX Business contributed to this report.

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