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