SLGS sales to be suspended at noon Friday

WASHINGTON – The Treasury Department's Bureau of the Fiscal Service announced Wednesday that it will suspend sales of state and local government series securities at noon on Friday until further notice.

The suspension comes as the nation’s federal debt limit is expected to reach a new ceiling at midnight Friday even if Congress reaches a stopgap deal to keep the federal government operating for two weeks through Dec. 22.

The halt in SLGS sales is the first of several extraordinary measures the Treasury typically takes to ensure that it will not exceed the debt limit. The Congressional Budget Office said in a recent report that if Treasury uses all of its extraordinary measures it will probably have enough cash until late March or early April.

Trump, President Donald Trump on Dec. 6, 2017
U.S. President Donald Trump speaks during a cabinet meeting at the White House in Washington, D.C., U.S., on Wednesday, Dec. 6, 2017. Trump said his plan to recognize Jerusalem as Israel's capital and move the U.S. embassy there is overdue while world leaders from the Vatican to Tehran denounced his stance as risking fresh violence in the region. Photographer: Kevin Dietsch/Pool via Bloomberg

"This suspension is necessary due to the statutory debt ceiling and will assist Treasury’s management of the debt subject to the limit," Treasury said. "The suspension applies to demand deposit and time deposit securities. "

Congress has raised or suspended the debt limit 23 times since 1993, including an agreement two months ago to suspend the limit through Dec. 8.

The lawmakers are not expected to raise or suspend it again as part of the short-term government spending measure under current consideration. The last continuing resolution expires on Dec. 8.

Congressional agreements to raise or suspend the debt “typically wait for bigger deals,” said Tim Shaw, senior policy analyst at the Bipartisan Policy Center.

Republican Sen. Pat Roberts of Kansas expressed doubt Wednesday that a debt limit increase or suspension would be linked to short-term appropriations measure to keep the government operating until later this month.

“It’s very unlikely, but I just don’t know yet,” Roberts told The Bond Buyer.

Likewise, House Democratic Minority Whip Rep. Steny Hoyer of Maryland told The Bond Buyer, “I do not expect the debt limit to be in the CR."

President Trump raised the possibility Wednesday that a partial government shutdown could occur midnight Friday.

“It could happen,” Trump said. “The Democrats are really looking at something that is very dangerous for our country. They are looking at shutting down. They want to have illegal immigrants; in many cases, people that we don’t want in our country.”

Republicans, however, control the White House and both chambers of Congress.

Hoyer issued a statement reminding Trump that, “with Republican majorities in the House and Senate, he and his colleagues control all the levers of our government.”

Either way, a shutdown or a two-week funding bill without an increase in the debt limit would place many state and local governments in a difficult situation.

That’s because issuers most often buy SLGS for advance refunding escrows to ensure their investment yields won't exceed their bonds yields and they do not violate yield restriction requirements. Many issuers are currently rushing advance refunding deals to market because they may not be able to do them next year.

Both the House and Senate tax bills would terminate advance refundings of municipal bonds after Dec. 31. A halt in SLGS sales would come in the middle of the rush to market and would force many issuers to use open market Treasury securities instead of SLGS, which are specially tailored to the issuer's bonds being refunded.

Meanwhile, Congress is delaying action on a separate emergency supplemental spending bill for disaster aid to Puerto Rico, the U.S. Virgin Islands, Texas and Florida. Lawmakers could vote on the emergency disaster aid before its year end recess.

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Munis Washington DC
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