Conference Agenda

We show that the debt ceiling significantly impacts the duration of government liabilities through an unintended interaction of the Treasury’s issuance rules and the debt ceiling constraint. During debt ceiling episodes, the Treasury systematically allows more bills to mature than it issues. In recent years this force has induced fluctuations in bill supply greater than one percent of GDP. Exploiting this, we devise an instrument for the supply of bills and show that the debt ceiling has distorted the price of short-term investment-grade corporate credit in both the primary and secondary markets. Our preferred IV specifications imply that a one hundred billion dollar decline in bill supply depresses corporate yields on the order of ten basis points.