* U.S. one-month T-bill rates hover at highest in 10 months
* One-year U.S. CDS prices revisit 2011 debt-fight levels
* Eyes on Washington as shutdown delays payrolls report
By Steven Norton
NEW YORK, Oct 4 Ultra short-term Treasury bill
yields hovered near 10-month highs on Friday as investors enter
the weekend with growing concerns about the possibility of a
U.S. government default.
As the first partial federal government shutdown in 17 years
hit a fourth day, traders continued to await hints the White
House and Congress might be coming closer to an agreement to
increase the government's $16.7 trillion statutory borrowing
limit before an Oct. 17 deadline.
Democrats and Republicans remained far apart in ending the
government shutdown on Friday, let alone reaching a deal on the
Jitters about delayed payments on short-term government
debt, or a technical default, spread to more T-bill issues.
Interest rates on bills that mature in the first half of
November last traded at 0.1 percent, 4 basis points higher than
late Thursday and up 8 basis points from a week earlier.
"The fact that November T-bills are feeling a little bit of
pressure suggests the market is becoming a little more
concerned," said Byron Carson, fixed income portfolio manager
and rates strategist at Principal Global Investors in Des
Moines, Iowa. "The longer this lags out there, the longer
investors will be looking to roll one- and two-month bills."
On Oct. 17, $85 billion of Treasury bills will mature. The
interest rate on that T-bill issue last traded at
0.12 percent, up 1 basis point from late on Thursday and up 8
basis points on the week.
"The front end of the T-bill market really has gotten hit
pretty hard," Carson said.
With little progress in Washington on a deal to raise the
borrowing cap, the cost to insure against a U.S. default in the
derivatives market nearly doubled this week, approaching the
level last seen in July 2011 during the first debt ceiling fight
between President Barack Obama and Republican lawmakers.
Investors would pay about 53,760 euros to insure 10 million
euros worth of Treasuries for a year on Friday, according to
Markit. A week ago, the cost on one-year U.S. sovereign credit
default swaps was nearly 29,000 euros.
The price on one-year CDS on Treasuries stood 15 basis
points above the five-year price, the widest gap since July
2011, highlighting concern about near-term risk.
While the ongoing government shutdown and the looming debt
ceiling deadline have roiled the T-bill sector, longer-dated
government securities have held in a tight range, suggesting
traders are clinging to hopes for a deal to avoid a default.
Benchmark 10-year Treasury notes fell 13/32 in
price with a yield of 2.650 percent, up 4 basis points from late
For the week, the 10-year yield bounced in a narrow 9 basis
point range, from an intraday low of 2.58 percent to a high of
2.67 percent, according to Reuters data.
The Treasury Department will sell a combined $64 billion in
coupon supply and at least $65 billion in bills next week.
Unless a debt limit deal emerges soon, the prospect for later
Treasury supply is murky, analysts said.
Next week's 10-year and 30-year note auctions likely will
not be much affected by the political bickering, Carson said,
while the 3-year might be affected by one or two basis points if
the rhetoric heats up.
"People want a decent concession going into next week's
auctions," said Jason Rogan, managing director of Treasuries
trading at Guggenheim Partners in New York.