The U.S. Treasury Department told major bond dealers on Friday it may have to cancel or postpone plans for its major quarterly round of debt issuance if Congress fails to raise the nation's borrowing limit by Aug. 2.
In a hastily organized meeting at the Federal Reserve Bank of New York, Treasury officials and representatives from the 20 primary dealers discussed options for handling the Treasury's quarterly refunding plans, which would normally amount to around $42 billion in new borrowing through sales of Treasury notes and bonds.
The options included decreasing the amount of the refunding, delaying it, or eliminating it altogether and issuing cash management bills to replace maturing securities, according to sources familiar with the meeting.
There was a general consensus among dealers, the sources said, that it would be better for the Treasury to delay the quarterly refunding rather than cut or cancel it.
The meeting was a higher-profile version of the normal talks Treasury holds with dealers each quarter to discuss debt sales.
Treasury officials confirmed the meeting was originally to be with representatives of around half of the 20 primary dealers, but at the last minute it was expanded to include all of the banks and securities firms authorized to deal directly with the Federal Reserve and the Treasury.
Dealers were told not to discuss the details of the meeting, and a readout of the meeting released by the Treasury said only that the dealers agreed swift Congressional action was necessary to lift the debt ceiling.
The Treasury has said if the country's $14.3 trillion debt ceiling is not raised, after Tuesday it will no longer be able to pay all the government's bills and will be at risk of default.
The Treasury is due to announce next week its borrowing needs for the current quarter and its plans for selling debt to meet those needs. But the political debate over whether to raise the debt ceiling has thrown into question how much debt Treasury can sell.
Short-term lending markets have seen the greatest levels of fear, with rates on Treasury debt maturing in August jumping to 6-month highs as investors dumped the debt on fears the government may choose not to repay them.
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