As part of its quarterly refunding statement issued earlier, the Treasury announced that it now expected to breach the debt ceiling "sometime between April 5, 2011 and May 31, 2011. The modest change in these estimated dates reflects an upward revision to projected receipts and a projected downward revision to debt to be issued to government trust funds." The tentative breach point has been pushed back by one week compared to the previous estimate of March 31, 2011 to May 16, 2011. Of course, these numbers incorporate the benefits of the wind down of the SFP program, discussed extensively previously on Zero Hedge, which we believe will provide a major (as in $195 billion over two months) liquidity boost for risk assets. As a reminder, as there was no 56 Day Cash Management Bill rolling auction today now that the Treasury is unwinding the SFP, tomorrow the market will see $25 billion in extra liquidity as an 8 week old bill matures and the proceeds are used by the PD to invest as they see fit. Back to the debt limit: when asked how much bigger the new debt ceiling should be, the Treasury left the ball in Congress' court:"We do not have a have particular figure that we have put to Congress. That is their prerogative to offer that," Mary Miller, Treasury assistant secretary for financial markets, told a news conference. While not new, Reuters summarizes what will happen should Congress not succeed to raise the debt target number fairly well: "If Congress does not raise the limit in a timely way, the government could be forced to scale back operations. A failure to lift the limit could raise the specter of a first-ever U.S. debt default and push up interest rates sharply." According to Zero Hedge estimates, Congress will end up raising the debt ceiling to $15.9 trillion from the current $14.3... a number which will need to be raised once again in January of 2012, at which point the entire debt "ceiling" farce can just be put aside.
A number of Republican lawmakers have raised opposition to increasing the limit without significant concessions on spending cuts from the Obama administration. A contentious debate is expected after the White House unveils its proposed fiscal 2012 budget later this month.
"Given the history of debt limit fights, brinkmanship will rule the day, and nothing of significance will happen in February," said Pierpont Securities analyst Stephen Stanley adding that a resolution could drag out "to the bitter end."
Senate Budget Committee Chairman Kent Conrad said the delay in hitting the debt limit buys more time for Congress to reach consensus on a plan to control long-term deficits -- a complex and difficult task.
"The increase in the debt limit, the amount of it, is much less important to me than having a plan that over time brings down this debt," Conrad, a Democrat from North Dakota, told reporters. "That to me is the key."
Treasury's Miller said the government had no plans to selectively cut or delay payments to employees or contractors . That "would in a sense be defaulting on our obligations, so it's not a path that we want to go down," she said.
Once again, none of this is new to Zero Hedge readers. What is, however, is the following:
The Treasury also disclosed that it had discussed with big bond dealers the possibility of an "ultra-long" bond with a maturity of 40, 50, or 100 years, as one of several options to broaden the investor base for Treasury debt. Miller said no decisions on this front were imminent.
While it is well-known, and much commented on here previously, that the US Treasury is funded with a woefully high ratio of short-term debt, the last thing the globally duration mismatched balance sheet needs now is to extended liability duration by orders of magnitude. Which is precisely why we are convinced that within 3 months the US Treasury will start issuing 100 year maturities... around the time when cotton surges by 10% each and every day.
For those who wish to learn more, the full minutes of the Treasury meeting can be found here.