US Treasury dealers recommend ending federal debt ceiling

By David Lawder

WASHINGTON, April 30 (Reuters) - The U.S. Treasury's primary dealers say they would prefer to end the federal debt ceiling, as it likely increases debt service costs and market volatility and may hurt the dollar's reserve asset status, minutes of the Treasury Borrowing Advisory Committee (TBAC) showed on Wednesday.

"The Committee expressed that its preferred option would be for Congress to delegate broad authority to the administration to borrow as necessary to fund government obligations," the TBAC said in the minutes from its quarterly refunding meeting held on Tuesday.

Treasury debt yields surged this month after Trump announced punishing "reciprocal" tariffs on many countries on April 2. The yields stabilized only after Trump paused his biggest increases on countries apart from China for 90 days.

The Treasury on Wednesday announced plans to sell $125 billion worth of coupon debt in its quarterly refunding next week, raising $30.8 billion in new cash. The Treasury's borrowing had been constrained by the debt ceiling in the February-April quarter, causing Treasury to spend down its cash balance.

The refunding will include $58 billion in three-year notes, $42 billion in 10-year notes and $25 billion in 30-year bonds.

The Congressional Budget Office in March estimated that the Treasury could exhaust its borrowing capacity under the debt ceiling and risk a payment default as soon as August. Private forecaster Wrightson ICAP estimated this week that the Treasury could have enough leeway to pay obligations into the second week of September.

But the TBAC minutes showed that the current debt limit process leads to large fluctuations in cash balance and short-term Treasury bill issuance to stay under the limit, creating volatility risks for the Treasury and for market participants.

"The presenter also noted that the debt limit has not successfully promoted fiscal responsibility but has harmed the United States’ credit rating and could affect the country's reserve asset status," the TBAC said in the minutes.

Republicans in Congress have regularly used debt ceiling standoffs to try to extract spending concessions in recent years. A debt ceiling extension expired on Jan. 1 and Treasury has been employing extraordinary cash management measures to continue borrowing until Congress takes action to raise or suspend it again.

U.S. Treasury Secretary Scott Bessent told senators during his January confirmation hearing that questions over repealing the debt ceiling were "nuanced" but if President Donald Trump wants him to eliminate it, he will work with Congress to get it done.

"Look, the United States is not going to default on its debt if I'm confirmed," he said at the time. "But I will tell you that, for people who don't understand the debt limit, it might be like taking out your handbrake in your car, that you can still hit the brakes, but it's one less feature."