Treasury postpones bond auction as debt-limit deadline approaches

WASHINGTON – The Treasury Department Thursday postponed an auction of government bonds scheduled for next week because of concerns that it would not be able to complete the sales because the nation is up against its debt limit.

The delay is the first related to a debt -limit standoff since 2004 and a sign that the latest impasse is starting to affect government operations and financial markets.

Treasury Secretary Jacob J. Lew has told lawmakers that they need to raise the $18.1 trillion debt limit by Nov. 3 or the federal government risks a default.

But congressional Republican leaders and the White House have been unable to agree on a debt-limit increase. The Treasury Department said Thursday that the standoff was “now adversely affecting the operation of government financing” and increasing its borrowing costs.

Interest rates on U.S. government bonds that mature in November have increased compared with those maturing in October or December, the department said, indicating that investors are concerned that the debt limit fight could delay payments.

This week, Sen. Charles E. Schumer, D-N.Y. cited those increases, which influence other interest rates, as a sign that “the consequences of brinkmanship and waiting until the eleventh hour are already upon us.”

“People have to pay more for mortgages, people have to pay more for car loans, people have to pay more for student loans, small businesses have to pay more,” he said. “It’s gone up some, it’s going to keep going up more.”

An auction of two-year Treasury bonds was scheduled for Tuesday, with those sales being finalized on Nov. 2.

But the Treasury Department said there was a risk that it would not be able to complete the sales because of “debt limit constraints.”

Nov. 2 also is the day that sales would be finalized for upcoming auctions of five-year bonds and seven-year bonds.

The Treasury Department said it postponed the two-year auction so it would have enough money to complete other upcoming sales of longer-term bonds.

The auction of two-year bonds would be rescheduled once the debt limit is raised, the department said.

The federal government technically hit the debt limit in March, but Treasury officials have been using accounting maneuvers to continue borrowing.

Those measures will run out on Nov. 3, putting the federal government at risk of default in the following days.

On Wednesday, the House passed legislation that would allow the Treasury to exceed the debt limit to pay principal and interest on government bonds, and pay Social Security recipients.

But the bill has no Democratic support and President Barack Obama has promised to veto it, arguing the debt limit should be raised so the federal government can pay all its bills.

Republicans want future spending cuts in exchange for agreeing to raise the debt limit. But Obama said he would not negotiate the debt limit because it must be increased to pay for spending that Congress already has authorized.