Published on May 25, 2023

The recent announcement by the US Treasury regarding its debt signals that June 1st may not be the critical "X-date" as previously anticipated

The Treasury's Bureau of Fiscal Management revealed plans to auction $119 billion worth of 3-month and 6-month bills on Tuesday, with the settlement of the sales scheduled for June 1st, two days after the auction. This particular date has been highlighted by Treasury Secretary Janet Yellen as a potential deadline for the government to face a shortage of funds to cover its obligations. However, the condition for this scenario is the absence of a deal between the White House and congressional Republicans to raise the $31.4 billion debt ceiling.

Typically, the bureau would not announce an upcoming sale "until it is certain that it has room under the debt ceiling for the new securities," according to research firm Wrightson ICAP.

Gennadiy Goldberg, a senior rates strategist at TD Securities in New York, noted that the fact that the Treasury proceeded with the announcement suggests that they have the necessary cash to settle the security. He views this as a positive sign, as the Treasury has previously stated that it would not announce auctions if it did not have the means to settle them. However, Goldberg cautions that this positivity is limited, as it is highly likely that the Treasury will run out of cash in the first two weeks of June.

Despite Yellen's earlier comments indicating a possible X-date as early as June 1st, most Wall Street firms estimate that the Treasury will exhaust its borrowing capacity between June 6th and June 9th. Currently, the government's cash balance stands at $68.34 billion as of Monday, showing a slight increase from $60.66 billion on Friday but a decrease from $87.43 billion a week earlier.

Of significance, June 1st marks the maturity date for approximately $117 billion worth of T-bills. The uncertainty surrounding the X-date has led to high volatility in the market, with the yield on that issue soaring to a record high above 7% on Wednesday. However, it declined on Thursday following the Treasury's auction announcement for bills settling on June 1st, alongside signs of progress in the debt ceiling negotiations. The yield currently stands at 5.89%.

Considering the urgency of the situation, talks between the Biden administration and Republicans in the US House of Representatives have reportedly made progress. A potential deal is taking shape, with the two sides differing by only $70 billion on a total figure that would exceed $1 trillion, according to a source cited by Reuters.

The recent announcement by the US Treasury regarding its debt signals that June 1st may not be the critical "X-date" as previously anticipated

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