Treasury rates jump on bills due on U.S. debt-ceiling deadline

Citigroup Survey

Two-thirds of respondents in a Citigroup Inc. survey said money-market funds will be most compelled to sell securities on a Treasury default. About 35% of respondents expect Treasury yields to rise by more than 50 basis points on a default, while 10% expect yields to fall by more than 50 basis points, according to polling conducted Oct. 7-9.

About 40% of respondents also expect central banks, money managers and insurance companies to feel the pressure to sell Treasuries, the survey said.

“We do believe that Congress will take the steps needed to increase the debt ceiling and avoid default,” said Nancy Prior, head of money funds at Boston-based Fidelity Investments, the largest U.S. provider of money funds, during a telephone interview. “Nonetheless, we have been taking precautionary measures and preparing contingency plans. We have avoided maturities in the time period toward the end of October.”

Rates to borrow and lend Treasuries in the repurchase- agreement market rose as investors step back from transactions in securities that mature around the date the government has said it will reach its $16.7 trillion debt limit.

The overnight Treasury general collateral repo rate opened at 0.16%, according to ICAP Plc, the world’s largest inter-dealer broker, up from the open yesterday of 0.09% and in line with the end-of-day rate of 0.17%.

‘Slowing’ Purchases

“Most participants viewed their economic projections as broadly consistent with a slowing in the pace of the committee’s purchases of longer-term securities this year and the completion of the program in mid-2014,” according to the record of the Federal Open Market Committee’s Sept. 17-18 gathering, released today in Washington.

The FOMC held off tapering $85 billion in monthly bond purchases last month and indicated that budget cuts and an increase in borrowing costs were drags on the expansion. Policy makers wanted to see more evidence of steady growth to combat 7.3% unemployment, they said in a statement.

Obama’s announced his selection of Yellen, currently Fed vice chairman, in a ceremony at the White House that included Chairman Ben S. Bernanke. Bernanke, whose term ends Jan. 31, cut interest rates to a record of almost zero in 2008 and began the bond-buying program, known as quantitative easing, to put downward pressure on borrowing costs.

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