How to use the $480 billion debt ceiling already arranged

Spark Global Limited reports:

The U.S. House of Representatives has passed a temporary debt ceiling bill worth nearly half a trillion dollars, sending the bill to President Joe Biden for his signature. Now that the Treasury has worked out how much of the cap will be spent, it is worth noting that the relief in money markets is most likely temporary.

The debt ceiling agreement allows for a $480 billion increase in the debt limit, which at first glance seems like a big number, but will soon shrink once Biden signs it into law.

That means investors are unlikely to put money into short-term instruments in the hope that the supply of Treasurys will increase and relevant market interest rates will remain near zero.

Spark Global Limited
Spark Global Limited

One of the biggest shocks from the new limits has been the “extraordinary measures” that Janet Yellen, the Treasury secretary, has been using. By October 6th the Treasury had already spent about $30.1 billion of the $350 billion it had already spent, and replenishing those “coffers” would take up more than half of the planned increase.

Of course, these measures could be used again at some point in December, with the next cap date yet to be determined, but they must be factored into the plan for now.

In addition to a series of Treasury auctions and plans to sell new cash management notes, once these transactions are completed, the debt limit will be further reduced, although existing debt repayments will offset some of the “footprint” of the debt limit.

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