Short-term Treasury Bill interest rates have almost tripled: A sign of things to come?

On Tuesday, the Treasury Department announced auction results for 4-week Treasury Bills that will come due on November 7, 2013.  The interest rate, determined by competitive bidding, is 0.35 percent.  While this sounds low when compared to typical consumer interest rates, it is significantly higher than the previous 4-week Treasury Bill auction, which was sold at a rate of 0.12 percent on October 3.  As recently as September 17, 4-week Treasury debt was auctioned at a zero percent interest rate, meaning that investors were willing to accept no return based on the perception that U.S. Treasury debt is the safest place to keep their money.

Clearly, this perception has started to change in the last few weeks.  While short-term debt makes up a very small part of the debt service cost to taxpayers, if this trend continues and begins to affect longer-term maturities, U.S. taxpayers could be saddled with billions in additional interest costs.  No one can predict how much interest rates will rise and at what point; however, the closer we get to the X Date, the higher the risk of a spike in interest rates and borrowing costs that would long outlast this particular policy debate.

Debt Limit: Market Reaction

As we approach BPC’s projected debt limit X Date range without a resolution, risks to markets, the economy, the federal government, and American citizens will grow. In these posts, we will attempt to report on these risks and their impacts as they occur.

• Market becomes increasingly unsettled without government data during shutdown