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Threat of US Default Boosts Its Borrowing Costs

FILE - A statue of former Treasury Secretary Albert Gallatin is seen outside the Treasury Building in Washington, DC.
The threat of a U.S. default on its financial obligations has pushed up the country's borrowing costs this month as investors worry that they may not be able to recoup their investments.

U.S. Treasury notes have long been viewed by investors as a safe harbor, securities that will always be repaid. But demand for U.S. securities weakened and interest rates increased as the impasse between U.S. President Barack Obama, a Democrat, and his Republican opponents over a partial government shutdown and the need to extend the country's borrowing authority extended into its third week.

The interest rate on one-month bills was just one-tenth of a percentage point on October 1, but had quadrupled to more than four-tenths of a point by early Wednesday. The rate dipped later to about a quarter of a percentage point on reports U.S. Senate leaders agreed on a package of measures that would reopen the government and extend the country's borrowing authority until early February.

The drop in the interest rate on the short-term notes meant that investors were less worried that the U.S. would default.

But the Senate and House of Representatives still have to vote on the legislative deal. Conservative lawmakers in the House have balked at extending the country's borrowing authority without also cutting government spending and sharply changing Obama's signature health care reforms that are now being put in place.

Some information for this report was provided by AP.