Evening Brief – 05.24.23

We continue to see constant back-and-forth in Congress from both parties about whether conversations surrounding the US debt ceiling are going in the right direction.

An agreement is unlikely to be made until the pressure on both parties is high enough (possibly dictated by either the financial markets or rating agencies) that a decision will be reached.

If we’re fortunate, it happens before the US economy suffers any serious damage. But that is not a given, particularly because both sides appear to believe they can either win or simply buy more time.

It is in this environment that US government bond yields are rising while US equities markets are starting to tremble following a strong run that began in October of last year.

However, US Treasury securities that are redeemed in early June are still your best indicator if you want to spot a jittery market. In recent weeks we have seen significant pressure on the front end of the curve as a result of the debt ceiling worries.

The yield on the 21-day cash management T-bill that the Treasury auctioned on Tuesday was 6.20%, which is higher than the yield on the 4-week Treasury bill from last week, which was 5.84%.

The bill, which has a deadline of June 15, would accurately reflect Treasury Secretary Yellen’s anticipated X-date timeframe of “early-June.” Additionally, a surge in corporate tax revenue is anticipated around that time, so the potential of default is still a major concern.

Despite the fact that demand for cash management bills is often smaller than that for benchmark issues, since 2000, when the 2-year, 10-year, and 30-year yields traded at that level, there hasn’t been a 6% handle on US Treasury securities.