TREASURIES-Debt ceiling fears shift to late Nov/Dec bills

Reuters

* T-bills due in late Nov/early Dec reflect debt ceiling

fears

* Long-dated prices rise on caution ahead of long weekend

* Fed buys $1.56 bln bonds due 2038-2043

By Karen Brettell

NEW YORK, Oct 11 (Reuters) - Yields on Treasuries bills

maturing in late November and December jumped on Friday, as

investors worried that any deal to increase the U.S. debt

ceiling would kick the risks of a default down the road.

President Barack Obama will press his case for a quick

reopening of the entire federal government, coupled with an

emergency increase of U.S. borrowing authority, when he meets

with Senate Republicans on Friday.

Late on Thursday, House of Representatives Republicans were

looking at possible changes to a vague plan they floated that

would give Obama a short-term debt limit increase - possibly

about six weeks - and reopen the government.

"No one is going to stand down yet from their preparations

for what is going to happen," said Jim Vogel, an interest rate

strategist at FTN Financial in Memphis, Tennessee.

Yields of short-term Treasuries bills have surged this week

as banks, money funds and others avoid debt that matures or has

coupon payments coming due in the danger zone, when the U.S. is

expected to run out of funds if the debt ceiling is not lifted.

On Friday, those concerns were increasingly pushed out to

Treasuries bills that mature in late November and in December,

when the debt ceiling will again be an issue if the government

agrees to push back the debt ceiling issue by six weeks.

Yields on Treasuries bills maturing on November 29

jumped to 0.22 percent on Friday, up from 0.12

percent late on Thursday and 0.05 percent on Wednesday.

Yields on one-month Treasuries bills that come due on

November 7 traded at 0.23 percent on Friday, down

from 0.26 percent late on Thursday. They remain significantly

higher than at the beginning of the month, before concerns about

a default increased, when they yielded only around 0.02 percent.

The debt came under pressure even though most investors

still expect a default by the U.S. government is unlikely.

"The stress in some of the bills is a case of a little bit

of window-dressing by money market funds and others," said Jim

Kochan, chief fixed income strategist at Wells Fargo Funds

Management in Menomonee Falls, Wisconsin. "The officials at

those funds may not be expecting a default, but they need to

take precautions because if there is one there would be no

defense for not having prepared for it."

The cost to obtain overnight loans backed by Treasuries in

the repurchase agreement market also rose to around 0.20 percent

on Friday, as investors became wary of accepting affected

collateral to back loans.

The repo rate had traded at around 10 basis points until

this week, when it jumped in highly volatile trading on concerns

over the debt ceiling.

Longer-dated Treasuries prices, meanwhile, gained on Friday

as investors remained cautious that Washington will reach a deal

to raise the federal debt ceiling and avert a potential default,

with volumes light heading into the long U.S. holiday weekend.

Hopes that a deal to raise the debt ceiling will be reached

on Thursday sent longer-dated yields spiraling higher, breaking

through technical support levels, and some of the most stressed

Treasuries bills also eased from their highs.

Some of that reversed on Friday as investors squared

positions before the long U.S. Columbus Day weekend. Bond

markets are closed on Monday.

Benchmark 10-year notes were last up 10/32 in

price to yield 2.65 percent, down from 2.69 percent late on

Thursday. Thirty-year bonds rose 17/32 in price to

yield 3.70 percent, down from 3.74 percent.

The Federal Reserve bought $1.56 billion in bonds due 2038

to 2043 on Friday as part of its ongoing purchase program.

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