NEW YORK: US Treasuries prices gained on Monday as lawmakers in Washington showed no progress towards ending a partial government shutdown, raising concerns about its impact on economic growth, and on concerns over the looming showdown over raising the country's $16.7 trillion debt ceiling.
The government moved into the second week of a shutdown on Monday with no end in sight. Many US economic releases, including crucial monthly payrolls data that had been scheduled for last Friday, have been delayed by the shutdown.
"The uncertainty in Washington is the clearest touchstone for the push towards Treasuries prices going higher; obviously the longer that the government is shut down, the more damaging it potentially becomes for the economy," said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut.
Investors are also focused on the release on Wednesday of minutes from last month's Federal Reserve policy meeting, which could reveal more about why the US central bank shocked markets by deciding not to begin reducing its $85 billion a month bond-purchase program.
The longer the shutdown lasts, the less likely the Fed is to begin cutting back on bond purchases, especially as it is unable to view government-issued data to gain a sense of the strength of the economy.
"The longer this goes on, the weaker the economic data will be, and that will probably push a tapering of quantitative easing further out, from 2013 to 2014," said Gary Pollack, head of fixed income trading at Deutsche Bank Private Wealth Management in New York.
Benchmark 10-year notes were last up 8/32 in price to yield 2.62 percent, down from 2.65 percent late on Friday. The yields have dropped from 3.00 percent, the highest in over two years, on Sept. 6.
Squabbling over raising the country's debt ceiling was also hurting riskier assets such as stocks, which may have added a bid to Treasuries.
Republican House Speaker John Boehner vowed on Sunday not to raise the US debt ceiling without a "serious conversation" about the country's rising debt levels, while Democrats said it was irresponsible and reckless to raise the possibility of a US default.
Most market participants see the United States as very unlikely to miss payments on its debt, because a default would likely have severe consequences, disrupting short-term funding and collateralized markets that are backed by Treasuries, and potentially creating broad aversion to US debt that would raise the country's borrowing costs.
Some investors are nonetheless avoiding shorter-dated bills that are most at risk of any delay in being repaid, and fears that the increasingly divided Congress will be unable to come to a solution may increase over the coming weeks.
One-month Treasuries bills are yielding 0.13 percent, higher than three-month and six-month bills, which pay 0.02 percent and 0.04 percent, respectively.
US Treasury Secretary Jack Lew has warned Congress the United States would exhaust its borrowing capacity no later than Oct. 17, at which point it would have only about $30 billion in cash on hand.
The Treasury said on Monday it will sell $30 billion in four-week bills next week, $5 billion less than its previous four-week sale. Some investors have worried that falling issuance as the US approaches the debt ceiling may create some shortages of Treasuries collateral to back trades.
The Fed bought $3.15 billion in notes due from 2021-2023 on Monday as part of its ongoing purchase program. The Treasury will sell $64 billion in new three-, 10- and 30-year bonds this week.
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