1. Are Treasury Securities Free of Default?
- Author
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Nippani, Shrinivas, Liu, Pu, and Schulman, Craig T.
- Subjects
TREASURY bills ,CORPORATE bonds ,SPREAD (Finance) ,DEFAULT (Finance) ,UNITED States politics & government, 1993-2001 ,UNITED States economic policy, 1993-2001 - Abstract
The chain of events that led to the disagreement between the White House and Congress over the increase of the federal debt limit from mid-October 1995 to March 1996 caused a default potential for Treasury securities. We examine the effect of this event chain on the yield spread between commercial paper and Treasury bills and find that both the three- and six-month yield spreads were reduced during the event period. The results suggest that the market charged a default risk premium to the Treasury securities. There is no evidence that these events had a sustained effect on T-bill rates since the yield spread during the post-event period resumed its pre-event level. [ABSTRACT FROM AUTHOR]
- Published
- 2001
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