Are treasury securities free of default?

The chain of events that led to the disagreement between the White House an d Congress over the increase of the federal debt limit from mid-October 199 5 to March 1996 caused a default potential for Treasury securities. We exam ine the effect of this event chain on the yield spread between commercial p aper and Treasury bills and find that both the three-and six-month yield sp reads were reduced during the event period. The results suggest that the ma rket charged a default risk premium to the Treasury securities. There is no evidence that these, events had a sustained effect on T-bill rates since t he yield spread during the post-event period resumed its pre-event level.