Bond traders are scaling back their bets that the government will default in the next few weeks but increasing their bets that there will be more problems next year.
Markets were responding to the emerging deal in Congress, which is looking to raise the debt ceiling until next February, at which point politicians will have to come to a new agreement.
The deal has led to a reversal in the recent price declines in Treasury bills set to pay out in November and December. Investors had been selling those bills in recent weeks out of fear that the government might not make its payments on time if Congress did not agree to raise the debt ceiling before Thursday.
But the deal is not reviving optimism in all corners of the Treasury debt markets. On Tuesday morning, investors were selling nearly all short-term bills set to pay out after February, suggesting some concern that we will be going through the same battles again. Normally, as the due date for a bond comes closer, the bonds become more expensive. Until today, that had been happening to next year’s bills.
“The news flow out of Washington, D.C. suggests a punt of government shutdown/debt ceiling risk to the January/February time frame,†Michael Purves, the chief global strategist at Weeden & Company.
The fall has been particularly notable for bills dated Feb. 13 and 20, but even bills due in July are falling out of favor. The span is notable because it suggests some concern that the debt worries could extend through next year.
