Did the repeated debt ceiling controversies embed default risk in US Treasury securities?

We examine whether the financial market charged a default risk premium to US Treasury securities when the US Federal government repeatedly reached the legally binding debt limits between 2002 and 2006. We show that for the first two of the four recurrences since the first episode in 1996, the financial market charged a small default risk premium to the Treasury securities. However, we find no significant evidence of a pricing effect in the last two recurrences. The results suggest that the financial market gradually perceived the budget standoffs as the boy who cried wolf.     

The Price of Future Liquidity: Time-Varying Liquidity in the U.S. Treasury Market

This paper examines the price differences between very liquid on-the-run U.S. Treasury securities and less liquid off-the-run securities over the on/off cycle. Comparing pairs of securities in time-series regressions allows us to disregard any fixed cross-sectional differences between securities. Also, since the liquidity of Treasury notes varies predictably over time, we can distinguish between current and future liquidity.We compare a variety of (microstructure-based) direct measures of liquidity to compare their effects on prices.We show that the liquidity premium depends primarily on the amount of remaining future liquidity.     

Debt Spreads Between GSEs and Other Corporations

Policy analysis of the housing GSEs—Freddie Mac, Fannie Mae, and the Federal Home Loan Bank System—has largely centered on a comparison of their cost advantages relative to the benefits they provide to consumers and the market. Researchers generally treat their lower funding costs as the largest component of their cost advantage and measure it by a comparison of spreads between yields on non-GSE securities and GSE securities. This paper provides the first econometric analysis of such spreads. Special components of this research are separate analysis of debentures and medium-term notes, a comparison with all financial firms and a banking subsample, and the introduction of liquidity proxies. Comparing Freddie Mac and Fannie Mae debt with non-GSE debt rated AA– gives an estimated range of 27 to 30 basis points without the inclusion of the liquidity proxies, and a range of 22 to 27 basis points with their inclusion, over 1995–2000.     

Spanish Treasury bond market liquidity and volatility pre- and post-European Monetary Union

Spain enacted a number of important debt management initiatives in 1997 to prepare its Treasury bond market for European Monetary Union. We interpret the impacts of these changes through shifts in a bond liquidity “life cycle” function. Furthermore, we highlight the importance of expected average future liquidity in explaining Spanish bond liquidity premiums. We also uncover pricing biases that support the Spanish Treasury’s tactical decision to target high-coupon, premium bonds in its pre-EMU debt exchanges. Finally, we show that EMU has been associated with both a decrease in bond yield volatility and an increase in pricing efficiency.     

The Fear Premium and Daily Comovements of the S&P 500 E/P ratio and Treasury Yields before and during the 2008 Financial Crisis

I develop a new risk measure called the Total Fear Premium that generalizes Faugere‐Van Erlach (2009) and accounts for both flight‐to‐safety and flight‐to‐liquidity behavior. This new measure helps to explain why the daily S&P 500 forward earnings yield (E/P ratio) is strongly negatively correlated with daily Treasury yields of all maturities during the 2008 financial crisis, which is a reversal from the relation that prevailed before the crisis. The Total Fear Premium “mimics” the VIX during the financial crisis. Once the basic GARCH formulation modeling the interaction between the earnings yield and Treasury yields is augmented with the Total Fear Premium, the relation between the earnings yield and short‐term Treasury yields becomes significantly positive, in line with Fama's (1975) view that short‐term yields are good proxies for expected inflation. Two by‐products of this analysis are: 1) a new risk premium measure associated with flight‐to‐liquidity and 2) a new way to measure the inflation risk premium on a daily basis.     

Money Funds or Markets? Valuing Intermediary Services

Recent market developments, such as on-line trading of Treasury securities and the reduction of the minimum Treasury bill denomination to $1,000, facilitate creation of a viable alternative to U.S. Treasury money funds for investors. Comparison of a direct investment in Treasury bills to U.S. Treasury money funds shows that money fund intermediary services such as check writing, telephone exchange privileges, payroll and automatic transfers, retirement plans, and minimum initial and subsequent purchases are worth an estimated 43 basis points per year, and investors pay an additional 11 basis points for active portfolio management. An analysis of fund net cash flows shows evidence consistent with arbitrage activity between money funds and the direct investment in Treasury bills, especially for investors with few ties to the money fund manager.     

Market-making costs in Treasury bills: A benchmark for the cost of liquidity

We focus on market-making costs by examining the daily bid–ask spreads for off-the-run, one-month Treasury bills around two liquidity-changing events. Event one, Salomon Brothers’ supply shock, results in a roughly 2.5-basis-point increase in the spread because of an increase in ask prices; and event two, the Long-Term Capital Management demand shock, results in a doubling of the spread because of a decrease in bid prices. Our results provide a benchmark for researchers examining bid–ask spreads of securities that include a liquidity premium, a risk premium, and an asymmetric information premium.     

New Issue Yield Spreads in the 30-Year Treasury Bond Market

This paper investigates the seasoning process of yield spreads between newly issued and seasoned 30-year Treasury bonds. These securities provide a unique data set for analyzing this relationship in that they allow for control of noncoupon differences between securities that were present in previous studies on corporate bonds. The results indicate that, in contrast to the existing literature, there appears to be a price premium for newly issued securities. We attribute this difference primarily to be a function of a higher degree of liquidity inherent to newly issued Treasury bonds.     

What went wrong? The Puerto Rican debt crisis,the “Treasury Put,” and the failure of market discipline

What went wrong? Why did seemingly rational, forward-looking bond investors continue to purchase Puerto Rican debt with only a modest risk premium? Why did financial markets fail to exercise market discipline and restrict capital flows to Puerto Rico?This paper examines the hypothesis that investors believed Puerto Rican debt was implicitly insured by the U.S. government by studying a rare situation where this “Treasury Put” was extinguished. The expectation of a federal bailout was perfectly reasonable given past behavior by the federal government. Evaluating the Treasury Put hypothesis with a minimal set of assumptions is possible given three unique features of the economic environment. The key feature is an exogenous “seismic shock” – the non-bailout of the city of Detroit in 2013 that effectively extinguished the Treasury Put, estimated in this paper as 350 basis points. Institutional reforms that would eliminate the Treasury Put are considered, but none are found satisfactory. How to extinguish the Treasury Put on an ongoing basis in a democratic society remains an open question.     

Rollover Risk and Credit Risk

Our model shows that deterioration in debt market liquidity leads to an increase in not only the liquidity premium of corporate bonds but also credit risk. The latter effect originates from firms' debt rollover. When liquidity deterioration causes a firm to suffer losses in rolling over its maturing debt, equity holders bear the losses while maturing debt holders are paid in full. This conflict leads the firm to default at a higher fundamental threshold. Our model demonstrates an intricate interaction between the liquidity premium and default premium and highlights the role of short‐term debt in exacerbating rollover risk.     

The cost of firms’ debt financing and the global financial crisis

We provide an assessment of the determinants of the risk premium paid by non-financial corporations on long-term bonds. By looking at 5500 issues over the period 2005–2012, we find that in recent years the sovereign debt market turbulence has been a major driver of corporate risk. Compared with the three-year period 2005–2007 before the global financial crisis, in the years 2010–2012 Italian, Spanish and Portuguese firms paid on average between 70 and 120 basis points of additional premium due to the negative spillovers from the sovereign debt crisis, while German firms received a discount of 40 basis points.     

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

This 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.     

A Comparative‐Advantage Approach to Government Debt Maturity

We study optimal government debt maturity in a model where investors derive monetary services from holding riskless short‐term securities. In a setting where the government is the only issuer of such riskless paper, it trades off the monetary premium associated with short‐term debt against the refinancing risk implied by the need to roll over its debt more often. We extend the model to allow private financial intermediaries to compete with the government in the provision of short‐term money‐like claims. We argue that, if there are negative externalities associated with private money creation, the government should tilt its issuance more toward short maturities, thereby partially crowding out the private sector's use of short‐term debt.     

Retail Investors and the Trading of Treasury Securities

I analyze implicit transaction costs of trading government debt securities on the Spanish stock exchanges (SE) electronic trading system. The SE’s multilateral system is used mainly as an outlet for retail investors to liquidate Treasury accounts positions before maturity. I compare identical Treasury security trades on the same day in two different markets: the SE and the interdealer market. By analyzing these yield spreads I learn more about the behavior of the markdowns included in the retail prices from the institutional prices. I find evidence that these yield premia depend on traditional features to explain wholesale market liquidity premia.

融资流动性与债券资产流动性的互动特征——基于MS-VAR模型的时变分析

依据2015-2021年货币市场和债券市场的时间序列数据,运用MS-VAR探究了不同违约风险环境下融资流动性与债券资产流动性间的互动关系。研究发现：无论是利率债还是信用债,其资产流动性与货币市场的融资流动性存在互为正反馈的流动性螺旋。此外,两类流动性间的互动特征存在非对称性和异质性,在风险时期,融资流动性与利率债资产流动性互动特征比较明显,而在平稳时期,融资流动性与信用债资产流动性互动特征比较明显。     

Funding advantage and market discipline in the Canadian banking sector

We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada in addition to the extent to which market discipline exists across different securities issued by the Canadian banks. The banking sector in Canada provides a unique setting in which to examine market discipline along with the prospects of proposed reforms because Canada has no history of government bailouts, and an implicit government guarantee has been in effect consistently since the 1920s. We find that large banks have a funding advantage over small banks after controlling for bank-specific and market risk factors. Large banks on average pay 80 basis points and 70 basis points less, respectively, on their deposits and subordinated debt. Working with hand-collected market data on debt issues by large banks, we also find that market discipline exists for subordinated debt and not for senior debt.     

审计师收取客户债务风险溢价了吗?

已有研究发现,公司债务风险越高,审计师收取的审计费用越高;然而,审计费用提高的原因可能是审计投入的增加,也可能是审计师收取客户公司的债务风险溢价。由于缺少审计投入的数据,已有研究无法回答审计师是否收取客户公司债务风险溢价的问题。本文以我国A股上市公司为研究样本,运用我国独到的审计工时数据,就此展开相关问题研究。研究发现,在控制了审计投入之后,客户债务风险与审计费用显著正相关,表明审计师收取了客户公司的债务风险溢价。进一步研究表明,审计师对财务状况较差和治理较差的公司以及非国有企业收取更高的债务风险溢价,规模较小的会计师事务所收取的债务风险溢价高于规模较大的会计师事务所。     

On the determinants of yield spreads between mortgage pass-through and Treasury securities

Yield spreads between mortgage pass-through and U.S. Treasury securities may reflect differences in taxation, phenomena affecting relative supply and demand, and compensation for default, call, and marketability risks on mortgage instruments. Our research empirically models differences in yields between pass-throughs and comparable-maturity Treasuries. We find that interest-rate volatility and the term structure of rates, factors often cited in the mortgage pricing literature as affecting the mortgage call premium, are the primary determinants of movements in these spreads. Moreover, these effects have grown in importance in recent years as exercise of the prepayment option has increased. We also find evidence that liquidity and credit concerns affect the pricing of pass-through securities.     

Project Finance Collateralised Debt Obligations: an Empirical Analysis of Spread Determinants

Credit rating is the most important variable in determining tranche spread at issue on collateralised debt obligations (CDOs) issues backed by project finance (PF) loans. Factors that are important for pricing in the case of corporate bonds, such as market liquidity and weighted average maturity, are also relevant for determining spreads for these securities. Furthermore, the nature of the underlying assets has a substantial impact on CDO pricing: Primary market spread is significantly higher when the underlying PF loans bear a higher level of market risk and when the proportion of projects still under construction in the securitised portfolio is larger.     

Special Repo Rates: An Empirical Analysis

Duffie (1996) examines the theoretical impact of repo “specials” on the prices of Treasury securities and concludes that, all else the same, an issue on special will carry a higher price than an otherwise identical issue. We examine this hypothesis and find strong evidence in support of it. We also examine whether the liquidity premium associated with “on-the-run” issues is due to repo specialness and find evidence of a distinct effect. Finally, we investigate whether auction tightness and percentage awarded to dealers are related to subsequent specialness and find that both variables àre generally significant.