January 2, 2018 / 6:41 PM / a year ago

UPDATE 1-Traders buy T-bills at auction in bet on U.S. debt ceiling deal

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By Richard Leong

NEW YORK, Jan 2 (Reuters) - Traders increased their purchases of U.S. three-month Treasury bills at a record-size auction on Tuesday in a sign they expect Congress to reach a deal to raise the debt ceiling by late March.

A measure of overall demand at the latest three-month bill sale rebounded to its strongest in a month from its below-average level in recent weeks.

“Today’s issue matures in April, when presumably Congress will have reached a solution for the debt ceiling problems,” said Tom Simons, money market strategist at Jefferies & Co. said in a research note.

The Treasury would exhaust all of its borrowing options and run dry of cash to pay its bills by late March or early April if Congress does not raise the debt ceiling before then, according to the nonpartisan Congressional Budget Office.

“In past debt ceiling episodes, certain dates have been avoided well in advance of the cash squeeze because investors do not want to be left holding the bag should liquidity dry up,” Simons wrote.

The pickup in demand for the three-month issue was muted by a heavy calendar of T-bill issues as traders returned from a three-day New Year’s holiday weekend.

U.S. financial markets were closed on Monday.

The Treasury on Tuesday sold a record $48 billion of three-month bills at an interest rate of 1.435 percent, which was not far below the highest since Sept. 2008 set the previous week, Treasury data showed.

The ratio of bids to the amount of three-month T-bills offered was 3.08, the highest in a month. This gauge of overall auction demand was 2.71 at the previous three-month bill sale last week.

It also auctioned a record $42 billion of six-month T-bills, $50 billion in one-month bills and $20 billion in one-year bills. (Reporting by Richard Leong; Editing by Susan Thomas and Cynthia Osterman)

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