Negative T-Bill Rates Persist as Supply Shortage Seen Worsening

The mismatch between supply and demand may worsen if wrangling over the U.S. debt borrowing limit at the end of the year causes the Treasury to have to cut its shortest-maturity debt. If the government drags it feet on dealing with what’s known as the debt ceiling, Treasury could be forced to pay off $200 billion of bills between mid-September and the end of November, according to Wrightson ICAP LLC....

“Debt-ceiling constraints could lead to a massive pay-down in the bill sector over the final four months of this year,” wrote Lou Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey, in a note Monday. “The net redemption would come at a time when the migration of money fund assets from prime to government-only funds is likely to be accelerating, which would make the bill squeeze even more severe.”