US debt ceiling: Yellen reiterates treasury may run out of cash soon as June 1

US Treasury Secretary Janet Yellen reiterated that her department may run out of cash to pay the nation’s bills as soon as June 1. 

“It’s highly likely that we would run out of resources to meet all the government’s obligations in early June and possibly as early as June 1,” she said virtually at a Wall Street Journal event Wednesday. “We no longer see very much likelihood that our resources will enable us to get to the middle or end of June.”

Yellen said Treasury and President Joe Biden will face tough choices if Congress doesn’t act to raise the debt ceiling.

“There will be some obligations we will be unable to pay,” she said.

The Treasury secretary said payment prioritization is not operationally feasible for the government. “We simply have to raise the debt ceiling,” she said.

There is some stress in financial markets over the debt ceiling, with some Treasury bills coming due in early to mid-June trading at higher interests rates, Yellen added. 

Negotiators for Democratic President Joe Biden and top congressional Republican Kevin McCarthy were set to reconvene today morning, after ending talks on Tuesday with no signs of progress.

Meanwhile, the world stocks dropped today as the debt ceiling talks dragged on without resolution, stoking a general malaise in markets that saw safe haven assets such as the dollar hold around recent highs.

But crude oil prices bucked the downtrend and kept rising, after a warning from the Saudi energy minister to speculators that raised the prospect of further OPEC output cuts.

The U.S. S&P 500 index shed 0.67% in morning trade, the Dow Jones Index lost 0.6%, and the Nasdaq Composite fell 0.6%. That helped to drag the MSCI world equity index, which tracks shares in 49 nations, down 0.95%.

“Equity markets are now beginning to fret about the debt ceiling debate,” said Nicholas Colas, Co-founder of DataTrek Research. “T-bills were way ahead on this call, and they are not yet signalling an all-clear.”

Yields on one-month bills, which are being shunned on concerns about payments coming due when the Treasury is most at risk of running out of money, struck a record high of 5.8920%.

Benchmark 10-year U.S. Treasury yields, meanwhile, edged down to 3.6996%.

The US dollar index, which measures the currency against six major peers, rose 0.14% to 103.69, nudging further above a two-month high of 103.63 reached last week.

Updated: May 24, 2023 — 11:14 pm

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