* U.S. lawmakers in last-ditch effort to raise debt ceiling
* Treasury to sell $20 billion in one-month bills
* Treasury to sell $26 billion in 189-day cash management
* Treasury to sell $22 billion in one-year bills
By Ellen Freilich
NEW YORK, Oct 16 Interest rates on U.S. Treasury
bills that mature in the next two weeks fell on Wednesday as
lawmakers began a down-to-the-deadline effort to raise the debt
ceiling, lifting investors' confidence that a deal could be
As the $16.7 trillion statutory borrowing limit loomed,
investors had hesitated to buy Treasury bills due in the latter
half of October in case of a default.
"Dealers were avoiding the sector and clearing banks were
unwilling to finance a paper that matures before year end,
causing a fairly chaotic environment," said Thomas di Galoma,
co-head of fixed income rates at ED&F Man Capital.
The impact of the unresolved debt ceiling issue was felt
early on in the repo market as well, where the general
collateral repo rate briefly rose to the highest level since
But new hopes for a deal reversed those trends and short
T-bill rates fell "in anticipation of a deal," di Galoma said.
The short end of the maturity curve will also be tested as
the Treasury sells a total of $68 billion in T-bills on
Wednesday: $20 billion in one-month bills, $26
billion in 189-day cash management bills and $22 billion in
After a day of stop-and-go negotiations, the top Democrat
and Republican in the U.S. Senate were said to be close to
agreeing on a proposal to raise the debt limit - and reopen the
partially shuttered government - for consideration by the full
Senate later on Wednesday.
But the measure's fate remained uncertain in the fractured
Republican-controlled House of Representatives, which failed
twice Tuesday to produce its own plan.
The Senate was scheduled to meet at noon (1600 GMT), and the
House at 10 a.m. (1400 GMT).
On Wall Street, the stock market rallied on hopes for a deal
that would extend U.S. borrowing authority until Feb. 7 and fund
government agencies until Jan. 15, ending a partial government
shutdown that began on October 1.
Uncertainty over Washington's ability to avert a default led
Fitch Ratings to warn it could cut the sovereign credit rating
of the United States from AAA, citing the political brinkmanship
over raising the federal debt ceiling.
"We have no real economic numbers to trade off of, and
traders and investors are glued to their TVs, watching and
waiting for some good news," said Kevin Giddis, senior managing
director and head of fixed income capital markets at Raymond
"The middle to long end of the yield curve is remarkably
calm. We can only hope that the confidence that the bond market
is showing translates into a deal," he said.
Benchmark 10-year Treasury notes were down 5/32
in price, with their yield rising to 2.75 percent from 2.73
percent late on Tuesday.
Interest rates on T-bills due on Oct. 24 and Oct. 31
rose in early dealings, but then eased
somewhat on hopes a deal would be reached to avert default.
The yield on a two-year Treasury note that matures at the
end of October and was issued in 2011 last stood at
The Federal Reserve Bank of New York's open market desk is
conducting an outright purchase operation this morning in the
February 2036 through August 2043 sector of the nominal Treasury
curve as part of the Fed's large-scale purchases aimed at
stimulating the economy and lowering unemployment.