Investors growing wary of debt ceiling showdown

The deadline for raising the debt ceiling is over six weeks away, but investors are already concerned about possible inaction.

The yields on U.S. Treasury bills that are set to expire after the Sept. 29 deadline set by Treasury Secretary Steve Mnuchin for raising the debt ceiling have spiked by as much as 0.15 percentage points, according to Bloomberg data.

That spike indicates some level of concern that the Treasury will not be able to pay the October debts as the result of congressional inaction on the debt limit.

If Congress fails to act, the Treasury will run out of borrowing options to pay its bills on time, raising concerns from the debt-holders that they won’t be paid on time, or perhaps at all.

While most members of Congress agree that action is necessary to prevent the U.S. from defaulting, and thus keep the full faith and credit of the United States intact, raising the debt ceiling is a tough sell for lawmakers, particularly among conservatives.

The conservative House Freedom Caucus, for example, wants to incorporate spending cuts or other changes in the bill, a prospect that makes it unlikely to garner the necessary Democratic support in the Senate. 

Democrats, who for years had called for “clean” debt increases under President Obama, are mulling demands of their own as Republicans struggle to get votes for the crucial bill.

Behind Mnuchin, the Trump administration is calling for a “clean” debt increase free of policy changes. 

The bond yield increases indicate a growing concern among investors that Congress will fail to address the issue on time.