"Extraordinary Measures" and the Perennially Too-Low Debt Ceiling


The Treasury Department last week delayed a two-year note auction because they bumped their head against the debt ceiling. Though the delay is one of several “extraordinary measures” employed by the Treasury in recent years, the debt ceiling has been a hotly contested issue for decades. Goldman Sachs Research noted delays in auctions have occurred “several” times and usually only affect Treasury bill auctions (however, a three- and ten-year auction were both delayed in 1995). They further noted the delays usually last only a handful of days. In the case of last week’s 2-year note auction delay, the Treasury announced it will be rescheduled for “at least a week” after the debt limit has risen, Goldman explained. Unease around the November 3 debt ceiling deadline recently caused yields on Treasury bills maturing around that time to rise even though other bonds’ yields along the curve did not change much. This is likely much ado about nothing, Goldman argues. Since the catastrophic debt ceiling debate in 2011, which resulted in Standard & Poor’s rating agency downgrading United States debt, Congress has acted more quickly and decisively to raise the limit, as it did in 2013, for example. All eyes are now on Congress, especially with news that Wisconsin congressman Paul Ryan has gained support in the ruling party. With a little luck, November 3 will come and go without a problem. 

Sources: Treasury, GS, BBG, SNWAM Research