Abstract
The relationship between federal government deficits and interest rates has been discussed widely and analyzed extensively. The Clinton administration's attempt to reduce the cost of funding the government debt by reducing long-term borrowing and replacing it with short-term debt highlights interesting questions about how the maturity structure of federal debt influences the effects of deficit spending. This paper empirically analyzes the relationship between the federal government's reliance on long-term borrowing and long-term interest rates. We find changes in long-term borrowing and changes in the ratio of long-term to total Treasury borrowing Granger cause changes in the 30 year Treasury bond rate. Beyond suggesting a relationship between the mix of maturities issued by the Treasury and the cost of funding the deficit, our results suggest that Treasury actions may impact the cost of long-term borrowing in markets where rates are influenced by changes in Treasury bond rates.