The proposal from top Congressional Democrats also seeks to fund the government to avert a shutdown as well as programs aimed to help those affected by Hurricane Harvey.
"That took pressure off the rates market, but we could see a replay in December," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia.
Investors have been concerned that a potential block on the Treasury's ability to sell more debt could result in a partial government shutdown, or even a default that could roil financial markets.
Investors had dumped Treasury bills that mature in October on worries the government would delay repaying them if the debt ceiling were not increased in time.
Interest rates on Treasury bills due in October tumbled on news of a short-term increase in the federal borrowing limit, currently at $19.9 trillion, but those on T-bills due in December jumped.
Interest rates on T-bills due on Oct. 5 fell over 20 basis points to 1.0425 percent, its lowest since Thursday. T-bill rates on other October issues fell anywhere from 2 basis points to 26 basis points, Reuters data showed.
The Treasuries market sell-off was underpinned by the Federal Reserve's Beige Book which showed a pickup in business activity but inflation remained subdued in July through mid-August prior to Harvey.
Another day of heavy corporate bond supply also curbed investor demand on lower-yielding Treasuries.
The rise in longer-dated Treasury yields was limited by jitters about further nuclear weapon tests by North Korea and concerns about Hurricane Irma, a powerful storm heading toward the southern United States.
The 10-year Treasury yield fell to 2.054 percent earlier Wednesday, the lowest since Nov. 10, before rising to 2.103 percent in late trading.
Separately, Fed Vice Chair Stanley Fischer, said on Wednesday he would step down from his position on or around Oct. 13 for personal reasons, before his term expires next year.
The absence of Fischer, who is seen to espouse a centrist view on monetary policy, will unlikely change the Fed's gradual interest rate-hike path and its possible announcement of a plan to shrink its $4.5 trillion balance sheet in September, analysts said.