This page has been archived and commenting is disabled.

The T-Bill Market Is Beginning To Brace For The "Hard" March Debt Ceiling

Submitted by Tyler Durden on 10/16/2013 19:44 -0400

The last few days have seen a great rotation in T-Bill markets. That rotation, as the chart below shows, has seen short-dated Bills rally as the new "deal" became closer and closer but the mid-term Bills start to crack higher in yield.

T-Bill yield change from last week as deal rumors began... the risk is now in the market and won't escape until the can is kicked infinitely far away - until then it will sloosh along the maturities as we approach the deadlines...

Based on press reports, the short-term debt ceiling extension expected to be passed by Congress would suspend the debt ceiling until February 7.

However, as Citi notes,

Feb. 7 would only be a "soft" deadline since Treasury would then be able to engage in "extraordinary measures" to open up "headroom" under the debt ceiling.

These measures may be worth around $200 billion of additional debt capacity. Based on a rough estimate, described below, we think the new "hard" debt-ceiling deadline, when Treasury is at risk of being unable to pay all its obligations, is likely to be in March 2014.

We base our rough estimate on the historical experience in 2013. Starting Feb. 7, 2013, Treasury ran a $144 billion cumulative deficit through Feb 28, 2013 and $270 billion cumulative deficit through April 1. Roughly speaking, if cash-flows in 2014 are similar to 2013, this would put the "hard" ceiling date under the proposed plan in March 2014.

The problem - introduced into the market by this most recent debacle - is that until the can stops being kicked (or is kicked infinitely), the politicians have made hundreds of billions of dollars in T-Bills "haircuttable" - i.e. not 100% money equivalent... and that naturally reduces the velocity of the collateral and rehypothecation, acting as a drag on risk (though we are sure the Fed will do its best to fill the broken "market" void)

- advertisements -

Wed, 10/16/2013 - 19:47 | 4062936 Seasmoke

Where are the black swans ?

Wed, 10/16/2013 - 20:11 | 4063015 stocktivity

It's all Bullshit!!!!

Wed, 10/16/2013 - 20:14 | 4063025 Running On Bing...

No it's not, rather another crack in the ice.

Reminder: we're all standing on the ice.

Over.

Wed, 10/16/2013 - 21:36 | 4063395 TwoShortPlanks

T Bill BOOM!!! http://twoshortplanksunplugged.blogspot.com.au/2013/10/gold-backed-global-sdr-hegelian.html

Wed, 10/16/2013 - 19:48 | 4062942 max2205

TD let's make a deal...no ceiling talk for 2 1/2 mths..deal?

Wed, 10/16/2013 - 19:58 | 4062965 LetThemEatRand

I felt like I saw this movie already this last time around (and certainly the ending was predictable), and now it's starting again?! Noooooooooo!!!!!!!!!!!!!!

Wed, 10/16/2013 - 19:59 | 4062971 Kirk2NCC1701

At what point do other countries come to their senses and stop buying our Debt, and decide that they'd rather keep the iToys and HW for their own people?

I suppose when they decided to use various dominant regional currencies as Regional Reserve Currencies of the BRICs. Reals, Rubles, Rupees, Yuans and Euros.

Thu, 10/17/2013 - 05:09 | 4064148 syntaxterror

anyone home? bernanke buys all the debt, chief.

Wed, 10/16/2013 - 20:32 | 4062975 Law97

Give it up ZH. QE4EVA has banished down markets to the dustbin of history. Look no further than a comparison to the 2011 debt ceiling crisis compared to now. That crisis wasn't anywhere near as serious as this one, yet the 2011 crisis caused a 20% correction. This crisis? Barely a hiccup after another glass of single malt over a K-street lunch.

Wed, 10/16/2013 - 20:02 | 4062989 ziggy59

So can the debt clock be restarted since its been frozen at just under 17 Trillion for 150 days now?
"Extraordinary measures"... Indeed

Wed, 10/16/2013 - 20:10 | 4063007 lolmao500

This "extraordinary measures" BS needs to be banned. So now that the debt ceiling will be raised, the debt will probably jump by at least 600-700 billion right away.

Wed, 10/16/2013 - 22:00 | 4063497 monkeyshine

$200 billion in "extraordinary measures" will only last a couple of weeks. The problem is not the debt ceiling, the problem is not living within reasonable means. Time for the FSA to retreat, and for Congress to begin to scale back the size and scope of government. We have one of the worlds greatest social safety nets and technological knowhow to make that safety net super efficient. Continuing to to lumber about in waste leaving ourselves open to wholesale fraud, corruption and abuse can no longer be tolerated.

Wed, 10/16/2013 - 20:22 | 4063068 NDXTrader

My understanding is that the bill contains the McConnell soft debt ceiling where the Comgress can vote the increase down, but the Prez can veto. So in essence there will never be another debt ceiling fight. At least that's what is being reported

Wed, 10/16/2013 - 20:29 | 4063103 goldenbuddha454

Mid-February would be a great time for the true Tea Party candidates to secede from the Republican Party. Those in favor of increasing the debt ceiling at that point in time without across the board cuts in spending will be seen as traitors to the cause and posers. Matter of fact, all the names should just be assembled now for those who are in favor of a debt limit increase in February. They need to go on the record now and say how they will vote then, that way they can be held to their statements.

Wed, 10/16/2013 - 20:52 | 4063197 Landotfree

Sorry ain't going to happen. Matter of fact, there won't be anymore votes on this made up stuff anymore. I told you guys where this is going. You either start the liquidation now or you start it later... they always pick later. These ZH articles are funny though. :)

I have no idea why people are complaining now, boy, this liquidation process is going to make the last one look like summer camp.

Wed, 10/16/2013 - 20:54 | 4063220 Bryan