Treasury Raises $26 Billion in Bill Sale

Department Issued Longest-Dated Cash-Management Bill Since 2009

By Carolyn Cui

Oct. 16, 2013 2:44 p.m. ET

The Treasury Department on Wednesday tapped an unusual tool to raise $26 billion, stocking up on cash as midnight approaches for its current borrowing authority.

The Treasury sold 189-day bills, the longest-dated so-called cash-management bill that the U.S. has issued since October 2009.
Cash-management bills are the most flexible instrument at the Treasury's disposal, as they can be issued when needed for varied lengths of time. As such, they are often used to bridge short-term funding gaps. Traditional Treasury securities are sold on a regular auction schedule.
The Treasury announced the plan to issue these special bills on Tuesday amid a Washington showdown over a possible budget deal. The bills will settle on Thursday, which the Treasury has cited as the date it will run out of emergency measures to borrow new funds.
"Basically they decided to convert most of their excess capacity to cash to prepare for the eventuality if deals are not passed by tomorrow," said Marcus Huie, an interest-rate strategist with Bank of America Merrill Lynch.
The bills were sold at a yield of 0.135%. Comparable six-month bills were yielding at 0.124%. Longer-maturity securities typically carry higher yields to compensate buyers for the risks of holding them, such as inflation.
Investors showed decent interest in these bills, which are due on April 24 and thus are being viewed in the market as being free of default worries. The so-called bid-to-cover ratio was 3.83 times, compared with a ratio of 2.84 times that the Treasury's five-day cash-management bills attracted a week ago.
"This particular CMB will allow Treasury to raise cash through the part of the year when we traditionally have less cash due to tax refunds going out the door," a Treasury spokeswoman said.
Amid the default fears, the yield on the Treasury bill due Oct. 24 soared to a fresh multi-year high of 0.722% Wednesday, and the bill due Oct. 31 rose as high as 0.685%, according to Tradeweb. Bond prices fall when their yields rise.
In recent trade, the selling eased as a vote on a preliminary debt deal in Congress appeared near. The yield on the T-bill due Oct. 24 traded at 0.312% and the T-bill due Oct. 31 yielded 0.4%.
Officials frequently used this tool at the height of the financial crisis to bridge short-term funding gaps. But in recent years, Treasury has slowed its use in a bid to hold down costs. The bills tend to pay higher yields than securities with fixed maturities, in part because of the issuance isn't scheduled as far in advance.
Until Wednesday, all the cash-management bills Treasury sold this year were between five and 64 days.
Treasury Secretary Jacob Lew has said that the Treasury would have about $30 billion in cash by Thursday. The money raised through the cash-management bills, along with other short-term bills, would bring in a total of $133 billion in cash this week for the Treasury—more than enough to cover $120 billion in bills due on Thursday.
Write to Carolyn Cui at carolyn.cui@wsj.com
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