The federal government is careening toward DC-Day, or debt-ceiling day.
The U.S. Treasury estimates emergency measures to allow the government to keep borrowing money will be exhausted on October 17, but that doesn’t mean Thursday will be D-Day, as in default day.
Even short of a deal to raise the $16.7 billion debt ceiling, the Treasury has until next week before some big bills come due. One unknown that could forestall D-Day is how much tax revenue rolls in.
But, investors are focused on something they do know: the calendar of upcoming Treasury payments.
In addition to the big paydays above that could trigger financial turmoil, the Congressional Budget Office (pdf) says the government will spend an average of about $10 billion per day for ongoing programs. That’s $3 billion more than the Treasury’s typical daily inflow of payroll tax and income tax withheld from paychecks.
During the next three weeks, the Treasury is also expected to roll over, or replace, around $300 billion in maturing debt. If investors are hesitant because of the political impasse or its aftermath, the government will have to offer higher returuns. That would drive up borrowing costs, and more debt.
The market is already giving us a glimpse of this possibility. Demand for newly issued short-term Treasuries has weakened in the past two weeks, as investors shy away from buying bonds that mature in the next three months.