As we noted earlier there are some 'possible' scenarios that enable payments to be made on Treasuries prioritized over other payments [5] but it would appear the short-term Treasury Bill market is becoming not just increasingly anxious about a technical default but is bringing that "X" date closer and closer. [6] The 10/31/13 bill had been the "most risky" of the short-term bills until this weekend but the lack of a deal and no indication of a resolution any time soon has seen risk piling up in the 10/17/13 and 10/24/13 bills - the latter now at 16bps (that is 4 times the yield on the 11/21/13 bill). The 1-month-1-year spread is still inverted (even as USA CDS compresses on the day).
Evidently, the "X" date is getting closer... 10/24/13 appears to be the new X-date now.
[7]
as is most clearly seen with the inversion of the 10/24/13 to 10/31/13 spread...
[8]
So depsite the politicians and strategists calls for specific dates, it would appear the market is becoming more and more anxious of the possibility of an actual missed payment on short-term bills.
The reason, well among other things, the un-furloughing of 400,000 Pentagon workers [9] will mean a few more days cash burn than many expected last week... As we noted previously,
"since the coffers of the Treasury are finite, and since there rate of
cash inflows is still the same, the fact that suddenly 400k more people
will have to be paid salaries will mean that the government's cash will
ran out that much faster, likely well before the October 17 X-Date,
meaning the debt ceiling deadline, and surrounding negotiations, just
got pushed forward."
Charts: Bloomberg