Yield Curve Inverts As Mnuchin Warns Congress Of "Extraordinary Measures" To Avoid Debt Ceiling

With the Treasury cash balance collapsing near zero, Treasury Secretary Mnuchin has written to Congress to warn them that Treasury will need to start taking extraordinary measures when statutory limit on U.S. debt is reinstated on March 16.

A copy of the letter dated March 8 was posted on Treasury website:

“Treasury anticipates it will need to start taking certain extraordinary measures in order to temporarily prevent the United States from defaulting on its obligations”

Treasury will suspend the sale of State and Local Government Series (SLGS) securities, which count against the debt limit, as of March 15 and “until the debt limit is either raised or suspended” As it’s done in the past, Treasury will use additional extraordinary measures. Mnuchin says that “honoring the full faith and credit” of U.S. outstanding debt is a critical commitment.

As Treasury Cash Balance crashes towards zero...

As The Hill reports, Failing to raise the debt ceiling after those measures run out would risk the United States defaulting on its debt.

“By CBO’s estimate, the Treasury would most likely be able to continue borrowing and have sufficient cash to make its usual payments until sometime in the fall of this year without an increase in the debt limit, though an earlier or later date is possible,” the CBO said in the report.


Treasury Secretary Steven Mnuchin said during his confirmation hearing that he supports increasing the debt limit, and Office of Management and Budget Director Mick Mulvaney said last month that the administration plans to use extraordinary measures as long as possible.


"But we will deal with it," he said, and "certainly" before Congress recesses in August.

But Debt Ceiling anxiety is already becoming very clear in the T-Bill market - the yield curve across the March month-end is massively inverted...

Axios notes there's some history here: Mick Mulvaney, Trump's director of the Office of Management and Budget, voted against raising the debt ceiling while serving as a U.S. congressman from South Carolina.

Trump also has expressed a willingness, in the past, to let the U.S. effectively default on its debt:

We suspect that attitude may change.

Perhaps the stock market will start to pay attention soon too.