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U.S. has room to borrow after record supply week
September 26, 2008 / 8:04 PM / 9 years ago

U.S. has room to borrow after record supply week

NEW YORK, Sept 26 (Reuters) - With the global credit crunch creating a thirst for low-risk assets, the United States has room to borrow more from the debt market after flooding it with a record $282 billion in securities this week.

This vast supply was absorbed by strong safe-haven bids for Treasuries in a week that ended with the biggest bank failure in U.S. history and traders left hanging over the fate of a $700 billion government bank bailout.

“Everyone wants T-bills because they are safe,” Brian Bethune, an economist at Global Insight in Waltham, Massachusetts, said on Friday.

The mass exodus into Treasuries drove one-month Treasury bill rates briefly below zero percent this week. It finished at 0.13 percent on Friday, down 56 basis points on the week for its biggest single-week drop in six months.

The $224 billion in Treasury bills and $58 billion in coupon debt sold this week also helped ease the bottlenecks in parts of the credit market, analysts said.

“This is unprecedented for new money borrowing,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey.

The U.S. government still has about $700 billion in borrowing capacity before reaching its current debt ceiling, Crandall added.

The borrowing limit will certainly be raised if Congress passes the $700 billion rescue package for the financial sector in the coming days, analysts said.

The federal debt load has ballooned to fund various programs created to help the ailing financial sector, together with the funding of its war efforts and entitlement programs.

Given the prospects of even more U.S. debt hitting the market, there have been worries about the long-term credit-worthiness of the United States.

This week, the cost to insure against the United States defaulting on its debt in 10 years hit a record high, according to CMA Datavision, a credit data firm.

The amount of all Treasuries outstanding stood at $4.882 trillion at the end of August, up from $4.476 trillion a year earlier, according to the Securities Industry and Financial Markets Association.

Reporting by Richard Leong, Editing by Chizu Nomiyama

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