It is with deep irritation and regret that we report the following: markets are forcing us to pay more attention to a certain deadline that’s approaching for the US government.
Treasury bills yields are trading wide to comparable repo-based benchmark rates for early June, as JPMorgan highlighted in a Monday note:
Short-dated Treasury bills aren’t just cheap, they’re 40bp cheap, according to JPMorgan:
T-bills maturing in early June cheapened further, with June 6 bills cheapening 40bp relative to matched-maturity SOFR today amid concerns of slow progress in the ongoing debt ceiling negotiations . . . we believe that there is still a lot of work to do before the x-date and that this may be a bumpier ride than markets are currently pricing, with bullish implications for Treasuries. Accordingly, we recommend holding longs in 5-year Treasuries.
To summarise some earlier AV posts: A technical default on Treasuries would undoubtedly be very bad and cause all types of problems. But it could be bullish for Treasuries. Because while a US default would be bad for US debt, it could easily be worse for every other financial market.
Gotta love a good reserve-currency narrative arc.