T-Bill Yields Spike After Government Shutdown

October 10, 2013 | Mike Spychalski, CAIA, Vice President

As the government shutdown enters its second week and a resolution to the upcoming breach of the debt ceiling on October 17 appears nowhere in sight, signs of concern are beginning to surface in the U.S. Treasury Bill market. As the chart shows, yields on T-Bills maturing between October 17 and November 14 have spiked significantly over the past week. After yielding an average of 0.01% without much volatility throughout the month of September, yields on T-Bills maturing around the expected breach of the debt ceiling have risen fairly significantly following the government shutdown that started on October 1.

To illustrate this, the yield on the T-Bill maturing on October 17 rose from 0.02% on September 30 to 0.14% on October 7. As the government shutdown dragged on and it became apparent that the political dysfunction that resulted in the government shutdown would likely spill over into the fight over raising the debt ceiling, yields started to spike even further, rising to 0.28% on October 8 and 0.38% on October 9. T-Bills maturing within four weeks of the October 17 debt ceiling breach have experienced a similar phenomenon. Interestingly enough, T-Bills maturing before October 17 and after November 14 have not seen any significant movement in yields, which indicates that while there is growing concern about a potential short term disruption to the U.S. Treasury market, the situation has not yet eroded investors’ confidence in the full faith and credit of the United States.

It is important to continue to monitor the recent rise in short-term T-Bills; if a similar spike in yields were to occur across the Treasury curve, it could have a significantly negative impact on the markets and the economy.