Abstract
Numerous studies analyzing the relationship between federal budget deficits and short-term interest rates have generated conflicting results. This study investigates the relationship between monthly treasury borrowing and the monthly change in the nominal three-month T-bill rate. Employing two nonparametric correlation tests, this study concludes that significant contemporaneous correlation exists between treasury borrowing and interest rate changes. Additionally, this study finds evidence of a treasury reaction function, in that treasury borrowing is inversely related to the previous months interest rate change.
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