The Day the United States Defaulted on Treasury Bills
Article first published online: 9 MAR 2005
Volume 24, Issue 3, pages 475–489, August 1989
How to Cite
Zivney, T. L. and Marcus, R. D. (1989), The Day the United States Defaulted on Treasury Bills. Financial Review, 24: 475–489. doi: 10.1111/j.1540-6288.1989.tb00353.x
- Issue published online: 9 MAR 2005
- Article first published online: 9 MAR 2005
Because of severe technical difficulties, the U.S. government was unable to repay investors in Treasury bills (T-bills) in late April through early May, 1979. This incident led to a 60 basis point increase in T-bill rates at the initial occurrence of the default. Unlike other information effects of that era, such as Henry Kaufman's predictions or Paul Volcker's “Saturday night special,” this increase in rates was not offset by a subsequent decrease in rates after the Treasury cured the default. The default apparently warned investors that Treasury issues were not completely riskless, which translates into a $12 billion annual increase in federal interest payments as a result of the 60 basis point permanent increase in interest rates.