Short-end yields spike amid debt ceiling conflict

CHICAGO: U.S. Treasury yields rose on Monday, spiking sharply on the shortest end of the yield curve as Washington wrangled over the debt ceiling.

The market also had its sights on the release later this week of September employment data, which could pave the way for the tapering of Federal Reserve asset purchases.

The benchmark 10-year yield, which last week rose to its highest level since June at 1.567pc, was last up 1.7 basis points at 1.4841pc.

The yield on one-month Treasury bills shot up to 0.1450pc, the highest since October 2020. It was last at 0.1217pc.

Yields on the shortest end of the curve have been elevated as the U.S. Treasury eyes Oct. 18 as the date when it might run out of cash, potentially leading to a default without a debt ceiling increase or suspension.

But Tom Simons, money market economist at Jefferies in New York, said information released by the Treasury department on Friday indicated the government has a bigger capacity to issuedebt, suggesting that the "drop dead date" could be pushed to Nov. 4.

Democratic President Joe Biden said on Monday that the government could breach its $28.4 trillion debt limit in a historic default unless Republicans join Democrats in voting to raise it.

Treasury yields edge higher after Europe foresees rate hikes

In a letter to Biden, Senate Republican Leader Mitch McConnell reiterated that Democrats have the ability to pass a debt limit increase on their own.

Meanwhile, Democratic Senate Majority Leader Chuck Schumer said if no progress is made this week, the chamber will be in session over the weekend and possibly next week.

Meanwhile, the market was looking ahead to September jobs data on Friday.

Fed Chair Jerome Powell has said the central bank could begin reducing its $120 billion in monthly bond purchases in November as long as U.S. job growth through September is "reasonably strong."

George Goncalves, head of U.S. macro strategy at MUFG in New York, said the market is bracing for a decent jobs report that would meet the Fed's criteria for tapering.

"It has to be a really amazing number for it to break us out of the high (in the 10-year Treasury yield) we saw last week," he added.

The five-year note yield, which is more sensitive to intermediate interest rate hikes, was last up 1.4 basis points at 0.9474pc.

A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was last less than a basis point steeper at 119.93 basis points.