The 'most boring security on the planet' is seeing some wild swings as investors position for the US to possibly default on its debt
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- The 1-month Treasury yield slid Wednesday as House Republicans headed for a vote on raising the $31 trillion debt limit.
- House Speaker Kevin McCarthy didn't say if he had the 218 votes needed to pass his proposal.
- The yield has been swinging recently on concerns the US will default for the first time ever.
Demand for the 1-month Treasury bill climbed Wednesday, pulling down the yield, as investors worrying about a potential US default watched for House Republicans to vote on raising the country's debt limit.
The yield on the 1-month bill fell by 15 basis points to 3.718%, declining from Tuesday's one-week high that left the return on the cash-equivalent security around 4%. The move was the latest big swing for the yield.
"Treasury investors seem to be crowding into shorter duration 1-month paper, and at almost any price, to avoid exposure to a potential US government default in the coming months," DataTrek Research co-founder Nicholas Colas wrote in a Wednesday note. Prices and yields move inversely.
House Speaker Kevin McCarthy planned to hold a vote Wednesday on his bill proposing to raise the debt limit by $1.5 trillion, or until March 2024, whichever comes first.
The vote would take place following overnight negotiations to pull in support from his Republican colleagues wanting changes to the bill, such as tighter work requirements for low-income government aid recipients.
McCarthy would not say whether he had the 218 votes necessary for the bill to pass, reports said.
Volatility in 1-month Treasury yields has been extremely high in recent days, "an unusual condition for what should be the most boring security on the planet," said Colas.
He illustrated that point by noting the yield over the past two days had surged 69 basis points – "the better part of an entire point in yield. Amazing."
The Biden administration on Tuesday confirmed the US president wouldn't sign McCarthy's bill, which requires trillions of dollars in spending cuts in exchange for raising the $31.4 trillion debt limit.
Washington's tussle over the debt limit revived memories of the political fighting that brought the US close to a debt default in 2011.
The S&P 500 dropped 6.6% on August 8, 2011, the first trading session after Standard & Poor's downgraded the US credit rating by one notch to AA+, marking the first ever downgrade of US debt.