Debt gridlock sends yields on T-bills higher

AP News
Posted: Jul 29, 2011 6:09 PM
Debt gridlock sends yields on T-bills higher

Nervous investors bailed out of shorter-dated Treasury debt Friday on fears that the government might not be able to meet its debt obligations next week.

The continuing impasse in Washington and unyielding positions on both sides of the political aisle has brought the country closer to risking an unprecedented default on U.S. government debt if the limit is not raised by an Aug. 2 deadline.

The yield on the Treasury bill that is due on Aug. 4 spiked to 0.24 percent.

Yields on other T-bills also rose sharply. The yield on the benchmark one-month T-bill coming due Aug. 25 jumped to 0.15 percent from 0.09 percent, and the yield on the three-month T-bill rose to 0.09 percent from 0.07 percent. Its discount was 0.09 percent.

Yields on the benchmark three-month T-bills have been as low as 0.01 percent as recently as July 15.

A slowdown in U.S. economic growth also sent Treasury prices higher.

The government reported Friday that the U.S. economy expanded at a meager pace of 1.3 percent in the spring after barely growing in the first three months of the year. The growth in the first half of 2011 was the weakest since the recession ended two years ago. Bonds rise when investors expect the economy to be soft.

The yield on the benchmark 10-year Treasury note fell to 2.80 percent in afternoon trading Friday, its lowest level of the year, from 2.95 percent late Thursday. Its price jumped $1.28 cents for every $100 invested.

The yield on the 30-year bond fell to 4.12 percent from 4.26 percent. Its price jumped $2.31 per $100 invested. The yield on the two-year note fell to 0.36 percent from 0.42 percent.