Content provided by Marc Pfeffer, Senior Portfolio Manager
I know many investors don’t follow the short-term Treasury market on a day-to-day basis. But, as someone who has followed the fixed income market for my entire career, which includes running money market funds, I know these securities are key components. During the summer months, the debt ceiling dilemma started to play havoc on short-term Treasury bills maturing in October. Why? The debt ceiling was set to expire at the end of September, and there was a possible, albeit very small, chance the U.S. would technically default by delaying payment due to politics.
Although I personally thought there was zero chance of this occurring, one still has to plan and appreciate the market was going to price in some of this uncertainty. With Congress on vacation through August, it looked like a resolution could only come in September. From September 1 to September 7, investors in these T-bills had been whipped into a frenzy. But a deal was finally struck Thursday afternoon as Congressional leaders and the president agreed to a three-month deal to raise the debt limit. The negotiated measure would suspend the ceiling through mid-December, essentially kicking the can down the road.
So now, we go from worrying about T-bills maturing in October to those maturing in December and early 2018. Until the debt ceiling is abolished, it will continue to wreak havoc from time to time on the short-term T-bill market.
Luckily, the U.S. has never been late on its debt payments, and hopefully it never will.