* T-bills due in late Nov/early Dec reflect debt ceiling
* Early gains fade heading into three-day weekend
* Fed buys $1.56 bln bonds due 2038-2043
By Ellen Freilich
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.
Gains in longer-dated maturities faded as the market quieted
before the three-day Columbus Day weekend.
Some of that fade-out was due to efforts by President Barack
Obama and congressional Republican leaders to allow a short-term
reopening of the federal government and an increase in the U.S.
"The Treasury market is in this tight trading range," said
Daniel Heckman, senior fixed income strategist at U.S. Bank
Wealth Management in Kansas City, Missouri.
The risk that U.S. elected officials might not come to an
agreement on the government shutdown and raising the federal
debt ceiling this weekend makes people hesitate to sell
Treasuries, he said.
Supportive for the Treasury market is that this week's three
Treasury auctions are completed, Heckman added.
The Treasury's sales of three-, 10- and 30-year debt this
week drew solid demand.
"The reality is large foreign and institutional investors
realize the U.S. government would make good on its obligations
even with the risk of this default and that - fundamentally -
things aren't that bad," Heckman said.
"We're going to find that longer-term, irreversible damage
wasn't done to the economy," he said. "People will look over
this valley; we won't always have to be addressing this issue."
Yields on 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 United
States is expected to run out of funds if the debt ceiling is
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 postpone the debt ceiling issue by six weeks.
Yields on Treasuries bills maturing on November 29
jumped to 0.18 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 0.26 percent, unchanged from
0.26 percent late on Thursday. They remain significantly higher
than at the start of the month, before concerns about a default
rose, 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.
At the longer end of the yield curve, benchmark 10-year
notes were last unchanged in price, yielding 2.68
percent. Thirty-year bonds were down 1/32 in price
to yield 3.74 percent.
"Right now the market may be feeling a little sanguine about
prospects for the debt ceiling and government shutdown issues
to be sorted out," said Jeffrey Cleveland, economist at Payden &
Rygel in Los Angeles.
The Federal Reserve bought $1.56 billion in bonds due 2038
to 2043 on Friday as part of its ongoing purchase program.