() — The US Treasury Department’s faucets are about to reopen after almost five months of frozen pipes.
In a vote Thursday night, the Senate approved a measure to suspend the nation’s debt limit until January 1, 2025. President Joe Biden is expected to quickly sign the law to prevent the first default on the debt. United States debt.
Since the borrowing limit was exceeded in mid-January, the Treasury Department has been unable to borrow more money. To pay its bills on time, the Treasury has taken a series of extraordinary measures to buy more time in the hope that Congress will take action to suspend or raise the debt limit.
These measures included the sale of existing investments and the suspension of reinvestments from the Public Administration Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. In this way, the Treasury freed up billions of dollars to delay a possible default.
Now, the Treasury will try to get back on track quickly. To do this, the Treasury will need to raise cash. Fast.
What happens once the debt ceiling is raised?
By law, the Treasury Department is required to return all funds affected by the extraordinary measures. You are also required to pay interest for the discontinuation of financing.
One of the ways he hopes to increase his cash balance is by auctioning cash management bills to one day worth US$ 15,000 million.
These bills mature in a relatively short period of time, ranging from a few days to a year, according to the Treasury Department. They are used to help manage the short-term financing needs of the Treasury.
Unlike Treasury bill auctions, which take place weekly and monthly, Treasury management bill auctions are irregular, though not uncommon. For example, last year the Treasury held more than 30 cash management bill auctions.
However, it is quite unusual for the Department to auction debt that is due in a single day. In the past 25 years, the Treasury has only held six Treasury bill auctions in one day.
In addition to Friday’s auction, $25 billion in three-day bills were auctioned Thursday with a yield of 6.15%. This figure exceeds the yields at which almost all other Treasury bills trade, underscoring the premium investors demand to buy government bonds.
The Treasury will tentatively issue another $123 billion in long-term bills on June 8. Before the Senate vote, Treasury said it was “conditional on enactment of the debt limit suspension because Treasury anticipates insufficient headroom under the current debt limit to issue securities in these amounts on June 8.”
Translation: The Treasury had been hedging its bets so as not to have to pay interest to noteholders on time in case the debt ceiling agreement was not signed into law in time to prevent default. Now that the Senate has approved the bill and Biden has said he will sign itthe Treasury is preparing to announce more borrowing initiatives.
What lies ahead
You’ll need them, because the United States is due some big bills soon: The Treasury makes interest payments around the 15th and last day of the month, and the Congressional Budget Office had said there was a significant risk that the Treasury will exhaust all its resources before June 15, if a suspension of the debt ceiling is not approved.
Although the Treasury is expected to receive a cash injection from tax payments due June 15, it will also owe interest payments on that day: mid-month interest payments are typically around $3 billion, the Bureau said. Congressional Budget. Payments at the end of the month have ranged from $10 billion to $16 billion over the past six months.
But immediate demands for Treasury cash could embarrass the stock market, which has largely ignored default risks.
This is because the Treasury will likely have to continue paying high interest rates on its debt to raise cash. In turn, investors could choose to buy more Treasury bills instead of shares, which could make the market less liquid.
