Analyzing the Changing Term Structure and Expectations
of U.S. Treasury Default Risk

Abstract

This article extends the recent studies of Liu et al. [2009] and Nippani and Smith [2010] that show that both short-term and long-term Treasury securities now include a default risk premium. Using a regression model that includes the spread between SWAPs and Treasury securities of different maturities, it is shown that the term structure of Treasury securities now exhibits default risk premia. These premia vary across time and maturity. Evidence from forward rates supports the conclusion and also allows one to estimate the timing of the default risk problems.