REFILE- UPDATE 1-U.S. Treasury auction points to debt ceiling jitters

Mon Feb 10, 2014 2:42pm EST

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By Jason Lange

WASHINGTON Feb 10 (Reuters) - The Obama administration's borrowing plans for this week suggest it is trying to soften the blow to public finances from congressional gridlock over raising a cap on government debt.

The Treasury Department said on Monday it aims to borrow just $8 billion this week in bills that must be repaid in one month. That's the same amount of one-month debt taken on last week, which was the lowest level in almost six years.

The tiny bill auctions mean Washington is holding down the amount of debt it will have to repay in the first half of March, which is when analysts think the U.S. government could start missing payments on its many obligations if lawmakers don't lift the debt cap.

Investors already are showing their concern by charging a higher premium for making loans to the government that will come due in early March. Borrowing less money that must be repaid in that period could save U.S. taxpayers some money.

The small one-month auction contrasts sharply with the ramping up this week of borrowing that comes due over longer horizons. The Treasury, for example, is increasing issuance of six-month bills to $42 billion from $20 billion last week.

"The only reason to keep (the one-month bill) low when everything else is going back up is because you don't want to sell something the Street doesn't want," said Lou Crandall, an economist at Wrightson ICAP in New York.

The size of the one-month debt sales also means the government will have to borrow relatively less money in early March to cover bills coming due, reducing its so-called roll-over risk during those weeks.

A Treasury spokesperson acknowledged that the department's expectations of demand for its short-term debt played a role in issuance plans. The spokesperson said short-term issuance also reflected seasonal borrowing needs during income tax season.

The Treasury typically ramps up issuance of short term securities around this time of year to help it fund income tax refunds.

Last week, the Treasury said it would pay dealers and investors 0.13 percent on one-month bills due March 6, the highest interest rate it paid on one-month bills at an auction since Oct. 16.

The one-month bills announced on Monday will come due on March 13. The interest rate on that debt will be determined at an auction on Tuesday.

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