History repeats: The debt ceiling

Treasury Secretary Lew updated the Treasury's forecast for its remaining borrowing capacity under the debt ceiling late Thursday. The debt ceiling deadline is now November 5. 

• Bill rates rise ahead of the debt ceiling deadline, but the effective fed funds rate is largely unaffected. Bid/ask spreads widen at bill auctions as demand declines. 
• GCF repo rates move sharply higher as cash lenders step away from the market.
• Securities identified as possibly vulnerable to payment delay because of the timing of the debt ceiling effectively become un-financeable and their liquidity falls. 
• Balances quickly flow out of government-only money funds. But custody account fees and the existence of the RRP may keep these balances from departing. 

Although recent Fed commentary leaves open the possibility of a rate hike at either of the two remaining FOMC meetings this year, disorderly debt ceiling negotiations this month will likely make the FOMC a bit more cautious about lifting off on October 28.

(Extracted from Barclays research notes.)