The increasing default risk of US Treasury securities due to the financial crisis

    Authors

    S. Nippani;S. D. Smith

    Comments

    Authors: contact us about adding a copy of your work at STARS@ucf.edu

    Abbreviated Journal Title

    J. Bank Financ.

    Keywords

    Financial crises; Treasury securities; Bond default risk; Risk-free; interest rate; US debt limit; US deficit; Yield spread; UNITED-STATES BANKRUPT; MARKET; Business, Finance; Economics

    Abstract

    This paper paper examines the impact of the current financial crisis on long-term US Treasury yields by testing the impact of a series of events from December 2007 to March 2009 on the spread between 10-year USD LIBOR swap and 10-year US Treasury (constant maturity) rates to measure risk associated with Treasuries. Controlling for the liquidity of the two markets, the default risk of the swap, and the net foreign purchases of Treasury securities, we find that 13 of the tested 20 events have significantly negative coefficients. We conclude that the lower spread is consistent with greater default risk for US Treasury securities. (C) 2010 Elsevier B.V. All rights reserved.

    Journal Title

    Journal of Banking & Finance

    Volume

    34

    Issue/Number

    10

    Publication Date

    1-1-2010

    Document Type

    Article

    Language

    English

    First Page

    2472

    Last Page

    2480

    WOS Identifier

    WOS:000281020900014

    ISSN

    0378-4266

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