Cliff Notes: The Effects of the 2013 Debt-Ceiling Crisis Cliff Notes: The Effects of the 2013 Debt-Ceiling Crisis

By Ali K. Ozdagli and Joe Peek

We investigate the effects of the 2013 debt-ceiling crisis on the Treasury bill market and possible spillovers to the commercial paper market and money market funds. We also compare this experience with the prior debt-ceiling crisis in 2011. We find that the 2013 debt-ceiling crisis reduced the demand for Treasury bills that were scheduled to mature right after the debt-ceiling deadline, but not for longer-term Treasury bills. Accordingly, we see that a hump formed at the shorter end of the term structure of Treasury bill yields around the debt-ceiling deadline, with the term structure returning to more normal levels immediately after resolution of the crisis, although with the suggestion of a new yield hump forming around the next perceived debt-ceiling crisis in early 2014. Spillovers from the disruption to the Treasury bill market appeared in the commercial paper market, affecting both commercial paper yields and the maturity composition of issuance. Spillover effects on Treasury and prime money market funds took the form of large, but temporary, outflows by investors, changes in the maturity structure of fund holdings, and changes in the portfolio composition of prime money market fund holdings, which likely were put in place in anticipation of such outflows.