Treasury Postpones 2-Year Bond Auction Due to Debt Ceiling


The U.S. Treasury Department on Thursday said it will postpone the two-year note auction scheduled for next Tuesday due to “debt ceiling constraints.”

With Congress embroiled in another battle over raising the U.S. debt limit, Treasury officials fear without an agreement to lift the debt ceiling Treasury won’t be able to settle the two-year note on Nov. 2.

“Treasury has limited borrowing authority available, and cash and nonmarketbale debt forecasts are extremely volatile,” a statement read. “Treasury believes that postponing the auction for the two-year note poses less risk for the market functioning than postponing the five-year or seven-year note offering.”

Meanwhile, the five-year note auction scheduled for next Wednesday and the seven-year auction for next Thursday will take place as scheduled.

Last week Treasury Secretary Jack Lew informed Congress in a letter that Treasury estimates that “extraordinary measures” for raising money to pay ongoing U.S. debts will be exhausted no later than Nov. 3.

“At that point, we expect Treasury would be left with less than $30 billion to meet all of the nation's commitments-an amount far short of net expenditures on certain days, which can be as high as $60 billion,” Lew wrote.

“The trend in our projected net resources has continued to be negative. I respectfully urge Congress to take action as soon as possible, raise the debt limit without delay, and remove an unnecessary threat to our economy," he added.

Treasury noted that the Congressional impasse is "adversely affecting the operation of government financing, increasing federal government borrowing costs, reducing the Treasury bill supply, and increasing the operational risk associated with holding a lower cash balance.”

Once Congress resolves the debt limit debate, Treasury said it will announce a rescheduling of the 2-year note auction.

The debt limit, a once-obscure annual event in which Congress approves raising the U.S. limit on how much it can borrow in order to cover growing expenses and inflationary price increases, has become a huge political football in recent years.

Republicans concerned by the overall U.S. debt level have fought to tie approval of raising the debt limit to cutting spending elsewhere. Democrats have resisted the effort, saying a higher annual debt limit is necessary for the U.S. to consistently pay its debts and maintain its credit around the world.

Past impasses over raising the debt limit have led to extreme market volatility and contributed to Standard and Poor’s stripping the U.S. of its highest credit rating in August 2011.

Lew addressed these political concerns in his letter last week.

“The creditworthiness of the United States is an essential component of our strength as a nation…,” he wrote. “We have learned from the past that failing to act until the last minute can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”