The yield on U.S. 10-year notes fell four basis points to 2.61 percent at 8:43 a.m. New York time. Lew said Congress needs to pass a debt-ceiling increase by Oct. 17 or the U.S. will be “dangerously low” on cash, speaking yesterday on CNN’s “State of the Union.”

“It’s a strange situation where the bigger the risk of the debt ceiling gets, the more Treasuries seem to benefit,” John Wraith, a fixed-income strategist at Bank of America Corp. in London said by phone today. “There’s a firm belief that ultimately this will get resolved one way or another, but in the interim it dampens the growth outlook and increases the chance the Fed will have to keep its foot down for longer.”

Lost Confidence

The 10-year yield has dropped since reaching a two-year high of 3.01 percent on Sept. 6. While the median estimate of more than 60 economists in a Bloomberg survey is for it to rise to 3.36 percent by the end of 2014, that would still leave it below the average over the past decade of 3.53 percent.

“What we have seen in times of crisis, whether it’s geopolitical or purely political, or economic, there tends to be a flight to quality,” James Sarni, senior managing partner in Los Angeles at Payden & Rygel, which manages $85 billion, said in a telephone interview Oct. 2. “The market is not pricing in a high probability of a default,” he said. “The market is ignoring Congress because they’ve lost confidence in them.”

The drop in Treasury yields contrasts with the increase in some European bond rates as nations there grapple with rising debt loads and political instability. During the height of the region’s sovereign crisis in 2011 and 2012, yields on 10-year notes of Greece, Ireland, Portugal, Spain and Italy all exceeded 7 percent, according to data compiled by Bloomberg.

Europe Contrast

Italy’s 10-year note yield rose on Sept. 30 to 4.66 percent, the highest level since June 27 as Prime Minister Enrico Letta said he would request a confidence vote on Oct. 2 following Silvio Berlusconi’s withdrawal of support for the nation’s five-month-old administration.

The difference between U.S and Italian yields has widened to 1.67 percentage points from this year’s low of 1.36 percentage points in August. Letta won the confidence vote.

While Fink and Gross, whose firms oversee a combined $5.76 trillion, say the U.S. government will pay its debts on time, some investors are hedging their risks.