U.S. Treasury activates another maneuver to avoid breaching debt limit

By David Lawder

WASHINGTON (Reuters) - U.S. Treasury Secretary Janet Yellen activated another extraordinary cash management measure on Tuesday to avoid breaching the federal debt limit, suspending daily reinvestments in a large government retirement fund that holds Treasury debt, the department said.

In a letter notifying Congress of the move to access the Government Securities Investment Fund (G Fund), Yellen did not alter a projected early June deadline for when the Treasury may no longer be able to pay the nation's bills without an increase in the $31.4 trillion statutory borrowing limit.

"The statute governing G Fund investments expressly authorizes the Secretary of the Treasury to suspend investment of the G Fund to avoid breaching the statutory debt limit," Yellen wrote in the letter to House of Representatives Speaker Kevin McCarthy, a Republican, and other congressional leaders. "My predecessors have taken this suspension action in similar circumstances."

Yellen last week suspended reinvestments in two other retirement and health benefit funds as the government nominally reached the debt ceiling. Republicans who now control the House have threatened to oppose a debt ceiling increase without spending reductions from the Biden administration.

The G-Fund maneuver is one of the largest tools that Treasury can employ to reclaim borrowing capacity under the debt ceiling. The fund, part of the Thrift Savings Plan for federal employees, had net assets of $210.9 billion at the end of 2021, according to its most recent annual report.

Normally the money market-like retirement fund reinvests its entire balance daily into special-issue Treasury securities that count against the debt limit. Halting the reinvestments allows more normal Treasury bills, notes and bonds to be issued.

But the Treasury is required by law to replenish the fund, along with any lost earnings, once a debt limit impasse ends. Federal retirees and employees would be unaffected by this action.

"I respectfully urge Congress to act promptly to protect the full faith and credit of the United States," Yellen wrote, repeating a regular line in her letters to lawmakers.

(Reporting by David Lawder; Editing by Tim Ahmann and Jonathan Oatis)