(Bloomberg) — The Treasury Department is starting the usage of special measures to avoid a US payments default, after the federal debt limit was reached Thursday.
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The department is altering investments in two government-run funds for retirees, in a move that can give the Treasury scope to maintain making federal payments while it’s unable to spice up the general level of debt.
Treasury Secretary Janet Yellen informed congressional leaders of each parties of the step in a letter on Thursday. She had already notified them of the plan last week, when she flagged that the debt limit can be hit Jan. 19.
Yellen reiterated that the time period that the extraordinary measures will avoid the federal government running out of money is “subject to considerable uncertainty,” and urged Congress to act promptly to spice up the debt limit. Last week she said the steps wouldn’t likely be exhausted before early June.
The precise funds affected by the Treasury’s move are:
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The Civil Service Retirement and Disability Fund, or CSRDF, which provides defined advantages to retired and disabled federal employees
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The Postal Service Retiree Health Advantages Fund, or PSRHBF, which provides postal-service retiree health-benefit-premium payments. The fund can also be invested in special-issue Treasuries
The 2 funds spend money on special-issue Treasury securities that count under the debt limit. After the debt limit is increased, the three will likely be “made whole,” with participants unaffected.
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It’s removed from the primary time the Treasury has resorted to those moves: Since 1985, the agency has used such measures greater than a dozen times.
For the CSRDF, Yellen said that the Treasury is entering a “debt-issuance suspension period” starting Thursday and lasting through June 5. The Treasury will suspend additional investments credited to the fund and redeem a portion of the investments held by it, she said.
As for the PSRHBF, the Treasury will suspend additional investments of amounts credited to that fund, Yellen said.
Last week, Yellen had advised that the Treasury also anticipated tapping — this month — the resources of a 3rd fund, the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan, which is a defined-contribution retirement fund for federal employees.
The so-called G Fund is a defined-contribution retirement fund for federal employees, and likewise invests in special-issue Treasury securities that count under the debt limit. Yellen’s letter on Thursday made no mention of the G Fund.
Yellen’s letter didn’t specify the quantity of headroom under the debt ceiling that may be created by the extraordinary measures she listed.
The Treasury probably now has $350 billion to $400 billion of headroom available in all, said Gennadiy Goldberg, a senior US rates strategist at TD Securities. That, together with the influx of revenue that can come from individual income taxes due in April, should let the Treasury go until sometime within the July to August window without running out of money, he said.
Other measures the Treasury has taken prior to now to conserve headroom under the debt limit include suspending the day by day reinvestment of securities held by the Exchange Stabilization Fund. That’s a special vehicle that dates back to the Thirties, over which the Treasury secretary has wide discretion.
The Treasury previously has also suspended issuance of state and native government series Treasuries. Those securities are a spot where state and native governments can park money, and so they count toward the federal debt limit. Those governments need to take a position in other assets when SLGS issuance is suspended.
–With assistance from Sydney Maki.
(Updates with analyst comment on Treasury’s headroom, in third paragraph from end.)
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