Yields On Short-Term US Debt That Matures Right Around The Debt Ceiling Are Blowing Out

Yields on U.S. Treasury bills maturing October 17, October 24, and October 31 are blowing out today.

The chart below shows the T-bill curve.

The green line shows the curve on September 3, when yields on bills maturing October 17 to October 31 were much flatter. The red line shows that by yesterday, these yields had risen a bit in anticipation of a fight in Congress over raising the debt ceiling, which the U.S. Treasury will hit on October 17.

The blue line shows the curve today as yields blow out. It appears that in light of the government shutdown that went into effect today, traders are now anticipating a bigger mess from the upcoming debt ceiling fight than before.

Note that the curve is now inverted — it slopes downward, whereas on September 3 it was upward-sloping. Yields on longer-dated T-bills are likely subdued relative to those on the front end of the curve because the market doesn’t anticipate a drawn out debt ceiling debacle.

Yet, as veteran bond trader @Fullcarry points out on Twitter, even a shorter confrontation that results in a technical default on U.S. government debt would cause problems:

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