Treasury Secretary Steven Mnuchin is either really confident Congress will address the debt ceiling by his “critical” Sept. 29 deadline, or he’s trying to pressure legislators to quickly resolve the episode.
Market observers were surprised by Monday’s announcement to sell $40 billion of cash management bills, or CMBs, on Tuesday. The 123-day CMB, which is the longest issue since October 2013, will leave the Treasury with less flexibility in managing the remaining headroom under the debt ceiling, Thomas Simons, senior economist at Jefferies, said in a note published Monday.
“These CMBs due consume borrowing capacity, but Treasury likely didn’t want to have to issue debt that would mature right around the debt-ceiling x-date,’’ said Joseph Abate, a strategist at Barclays in New York. “They saw it better to issue longer-dated paper that matures after the debt-ceiling, which is presumably increased, so it’s well beyond the critical zone. There were no optimal options.’’
During past debt-ceiling showdowns, Treasury had to juggle its financing needs without exhausting its borrowing authority. That prompted strategists to anticipate more short-dated CMBs to bridge funding gaps between coupon settlements again. About three months before the 2015 drop-dead date, Treasury issued six different CMBs to secure financing without consuming room under the debt ceiling, ranging from 12 to 72 days.
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