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Are Treasury Securities Free of Default?

Listed author(s):
  • Nippani, Srinivas
  • Liu, Pu
  • Schulman, Craig T.
Registered author(s):

    The chain of events that led to the disagreement between the White House and Congrees 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.

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    Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

    Volume (Year): 36 (2001)
    Issue (Month): 02 (June)
    Pages: 251-265

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    Handle: RePEc:cup:jfinqa:v:36:y:2001:i:02:p:251-265_00
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    Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK

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