The Increasing Default Risk of U.S. Treasuries Securities Due to the Financial Crisis

Srinivas Nippani and Stanley D. Smith

No 2010-WP-01, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: We examine the impact of the current financial crisis on long-term U.S. Treasury yields by testing the impact of a series of events from December 2007 to March 2009 on the spread between 10-year United States Dollar (USD) London Interbank Offered Rate (LIBOR) swap and 10-year U.S. 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 U.S. Treasury securities.

Keywords: Financial Crises; Treasury Securities; Bond Default Risk; Risk-free Interest Rate (search for similar items in EconPapers)
JEL-codes: G01 G12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2009-04
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