Debt Ceiling “Kink” Shifts To December As Bonds Now Brace For Dec 15 “Drop Dead” Date

Now that we have a debt ceiling deal, with the Senate set to raise the debt ceiling by $480 billion and extend the Deadline to Dec 3, the bond market has shifted the Treasury Bill kink from mid-October by two months, to mid-December.

With the October “kink” normalizing fast, as the rate on the Oct 19 bill falls in line with its comps…

… the bond market has set its sight on mid December as the next drop dead date, with the December “proxy” (Dec 16 Bill rate less Dec 9 Bill rate) soaring.

Commenting on the decision to punt to Dec 3, Goldman writes that this is intended to carry the Treasury to December 3, at which point an additional debt limit increase or suspension would be required. 

According to Goldman, “the amount is higher than we would have anticipated the Treasury would need to get to that date, so there appears to be a good chance that the actual deadline for the next increase will come somewhat later than Dec. 3” which is why the Dec 16 Bills are “kinking” out while the Dec 9 are still relatively normal.

That said, even Goldman notes that the can kicking is not sufficient to last past the end of the year, so it appears likely that Congress will need to address the issue in December as expected, “either as part of the next reconciliation bill, a standalone bill, or part of a spending package for FY22 to extend spending authority past the current expiration, which Congress also set at Dec. 3 when it passed its continuing resolution on Sep. 30.”