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Treasury bond investors show no fear as U.S. hits debt ceiling

May 16, 2011 | 11:13 am

The U.S. Treasury has reached its $14.29-trillion debt ceiling, but it's a non-event in the bond market.

Yields on Treasury securities were flat to slightly lower Monday, continuing a decline that began in mid-April.

The 10-year T-note yield (charted below) was at 3.16% at about 11 a.m. PDT, down from 3.17% on Friday. The two-year T-note was at 0.52%, down from 0.53%.

10yr516 Wall Street has known for weeks that Monday would be the day, so the news is surprising no one. More important, there is no risk of default at the moment because the Treasury is taking stop-gap measures to conserve cash as it waits for Congress to make a decision about raising the ceiling.

The government will continue to issue new debt via bill, note and bond auctions. Some of the borrowing merely rolls over existing debt and so doesn’t add to the total outstanding.

On Monday the Treasury sold $27 billion of three-month bills at an annualized yield of just 0.03%. It also sold $24 billion of six-month bills at a yield of 0.07%. Obviously, given those barely detectable yields, Uncle Sam has no trouble borrowing.

Treasury yields overall have fallen in recent weeks as some investors have once again sought U.S. government debt as a haven, amid concerns about signs of slower U.S. economic growth and as Europe’s debt crisis has worsened.

It also helps that the Federal Reserve continues to buy Treasuries in the open market under the $600-billion purchase program it launched in November, an effort to keep long-term interest rates suppressed. That program will end June 30.


U.S. Treasury to take "extraordinary measures" to avoid debt limit

Boehner say it's "clear" debt ceiling must be raised

 -- Tom Petruno