Money Managers Confident of Debt Ceiling Deal: The Wall Street Journal

According to the Wall Street Journal (WSJ), money managers are apparently confident that lawmakers in Washington will a cut a deal on raising federal government’s borrowing limit before the deadline.

Indeed, as the deadline to resolve the debt ceiling issue nears, money managers have been showing strong interest in buying short-term treasuries. WSJ in its news report pointed out that short-term treasury bills have sold off sharply in the recent past.

Money-market fund managers, who are only allowed to put money on safest short term debts, see this as good opportunity (the drop in demand for short-end treasuries).

Debt ceiling limit, a point from where the federal government will run out funds to finance day to day administrative affairs and repay its obligation to creditors unless the White House and Congressional Republicans find a middle path for raising the borrowing limit, is likely to end in the first week of March.

“We’re really not worried about the U.S. defaulting,” said Joseph D’Angelo, head of money funds at Prudential Fixed Income, speaking to the WSJ.

While the yields on Treasury bill which will be maturing on March 7— a first big  repayment obligation for the federal government after the deadline ends, rose as high as 0.12% in the last week from 0.06% in a week earlier, yields on three months bill ( bill having shortest maturity period sold by the federal government) is only 0.08%.

Just last Friday, news emerged that the House of Republicans was considering to push back the debt ceiling deadline by 3 months or so in order to buy itself some time for convincing the Democrats on their spending cuts demand and to bring down the yields level back to 0.06% mark.

Nonetheless, it doesn’t mean that every money manager is comfortable buying short term treasuries just due to better yields. Since such funds are very conservative, any prolonged policy logjam would prompt these funds to shun juicer yields and look for safer options instead. Barclays, according to the WSJ, warned last week that in case lawmakers fail to break the logjam before February 15 then nearly 15% of balances meant for government-only money funds could go to bank deposits.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.