Jerome Schneider, head of short-term portfolio management and funding at Pacific Investment Management Co. reportedly said yields on certain U.S. Treasury bills could rise to 10% if the debt ceiling impasse continues until the securities are about to mature.
"Fear is going to be exacerbated to the tune of hundreds of basis points, if not more in T-bill yields, thinking of some yields in the excess of seven, eight, nine, 10 percent," Schneider said according to a Bloomberg report. He, albeit, noted that it's not Pimco's baseline expectation.
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Following a debt ceiling summit with President Joe Biden and other key lawmakers on Tuesday, House Speaker Kevin McCarthy said that negotiators are still far apart but a deal by the end of the week is feasible. Biden is cutting his Asia trip short and returning to the U.S. on Sunday after the G7 meeting for the debt ceiling negotiations.
Higher Yields: Historically, investors have demanded higher yields on securities which are due shortly after the U.S. is expected to run out of borrowing capacity, the report said. Earlier this month, the Treasury Department auctioned one-month bills at the highest-ever yield for the tenor. The government sold $50 billion of four-week securities at a record yield of 5.84% which is the highest for any Treasury bill issue since 2000.
"What we're thinking about is the fact that the landscape right now in short-term land is really divergent," Schneider said.
The iShares 1-3 Year Treasury Bond ETF SHY and the Vanguard Short-Term Treasury Index Fund ETF VGSH closed 0.12% lower on Tuesday, according to Benzinga Pro.
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