Paper The Debt Ceiling's Disruptive Impact: Evidence from Many Markets

We show that the debt ceiling significantly impacts the duration of government liabilities through an unintended interaction between Treasury issuance rules and the debt ceiling constraint. During debt ceiling episodes, the Treasury 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. We exploit this to construct an instrument for bill supply and show that the debt ceiling distorts convenience premia and the pricing of investment-grade corporate credit. We attribute the Treasury’s implicit decision to lengthen the duration of its liabilities to an intermediation constraint.

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