As the government shutdown goes into its 16th day and Congress painstakingly inches closer to a deal on the debt limit, the price of short-term Treasury bills have been tanking, sending yields soaring. This appears to be reflecting concerns that the Treasury Department may not be able to pay lenders when this liabilities come due.
However, one analyst believes this is a great time to buy this short-term government debt on the cheap.
Here’s Carl Weinberg of High Frequency Economics:
“Strategies abound for avoiding a default on T-bills, notes and bonds. We do not have to go into all of them here, but you can be sure Treasury has a plan B as well as plans C, D and E to avoid disaster. It has had plenty of time to work on them. Prioritizing payments to cover the debt is an obvious strategy. A more sophisticated plan would be to roll over maturing debt into super-high-coupon long-term bonds that would sell at a huge premium over par. Yes, Treasury will be selling bonds even after the debt ceiling is reached to roll over maturing bills and notes. Take a maturing bill with a face value of $US100 and roll it over into a 20% coupon 30-year bond with a $US100 face value. That long term bond would raise $US400 in cash at an auction in today’s market yields, but the rollover would not increase the debt….”
Below is a recent chart of yields on short-term debt skyrocketing.