US Cancels Two Year Due to Debt Ceiling Fears

The U.S. Treasury canceled a sale of two-year debt slated for next week due to fears Congress won’t act in time to raise the debt ceiling.

Treasury specifically cited “debt ceiling constraints” caused by the current “impasse” in Washington.

The two-year note sale was scheduled for October 27. And the date that sale would settle – or go through – was scheduled for Nov. 2.

That’s a day before the Treasury said it estimates that it will exhaust special accounting measures that are keeping the country’s debt below its legal limit.

If Congress doesn’t act by then, it puts the Treasury at risk of defaulting on many of the country’s legal obligations.

One of the concerns is that the sale could push the country’s debt above the legal limit. To prevent that, Treasury would have to simultaneously retire an equal amount of outstanding U.S. bonds, bills or notes. But there’s no guarantee that it can do so down to penny the same day because it won’t have much if any borrowing authority left.

“The margin for error is very small at this point,” said Shai Akabas, associate director of economic policy at the Bipartisan Policy Centre.

via CNN

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza