June Treasury bill yields drop after House passes debt limit deal.

Investors Breathe a Sigh of Relief as Treasury Bill Yields Fall

Yields on Treasury bills maturing soon have fallen from recent highs, a sign that investors are no longer worried about the possibility of a default on federal debt now that the debt limit deal has passed the House.

It seems that investors can finally breathe a sigh of relief as yields on securities maturing in early June have fallen significantly. Bills maturing on June 6, which were previously at risk, now feature yields below 5.3%. Yields for bills maturing on June 15 have also fallen below 5.2%, and yields for bills maturing throughout the entire month of June are mostly down on Thursday.

Debt Limit Deal Brings Stability to the Market

The declines in yields are a big fall from the level that yields were at just days ago. Prior to the deal and its subsequent passage in the House, yields for Treasury bills maturing in June were pushing above 7%. This spoke to the uncertainty about whether President Joe Biden and House Speaker Kevin McCarthy (R-CA) would be able to craft an agreement in time and prevent a technical default.

The higher yields were centered on the time that officials predict the U.S. will hit the so-called X-date, which is when the Treasury would no longer be able to guarantee that it can pay its incoming obligations. Those bills would be at risk of nonpayment, causing investors to avoid them.

The White House and GOP leadership appear to have avoided the worst of the debt ceiling woes. Prior to the agreement, there were fears that the U.S. could bump up too close to the X-date, a scenario that would have been calamitous to the economy.

Market Stability Despite Uncertainty

During the 2011 debt limit fight, the stock market suffered massive losses, with the S&P 500 losing about 17% of its total value. However, this time around, the stock market didn’t suffer massive losses, even though the country is still within days of the X-date hitting.

Stocks were largely flat on Thursday following the bill’s passage. But over the past five days, the Dow Jones Industrial Average was actually slightly up, and the S&P 500 was up about 1% during that same period of time.

Conclusion

The debt limit deal has brought stability to the market, and investors are no longer worried about the possibility of a default on federal debt. With yields on Treasury bills falling, it seems that the worst of the debt ceiling woes have been avoided.

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