Official Demand for U.S. Debt: Implications for U.S. Real Interest Rates

Author/Editor: Iryna Kaminska ; Gabriele Zinna
Publication Date: April 18, 2014
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: By constructing and estimating a structural arbitrage-free model of demand pressures on US real rates, we find that recent purchases of US government debt securities by the Fed and foreign officials have significantly affected the level and the dynamics of US real rates. In particular, by 2008, foreign purchases of US Treasuries are estimated to have had cumulatively reduced long term real yields by around 80 basis points. The subsequent total impact of Fed purchases in 2008-2012 has been even larger: the quantitative easing (QE) has depressed real 10-year yields by around 140 basis points. Our findings also reveal that the Fed policy interventions and foreign official purchases affect longer term real bonds mostly through a reduction in the bond premium.
Series: Working Paper No. 14/66
Subject(s): Bonds | United States | Demand | Interest rates | Foreign investment | Bond markets | Economic models

Publication Date: April 18, 2014
ISBN/ISSN: 9781475590081/1018-5941 Format: Paper
Stock No: WPIEA2014066 Pages: 46
US$18.00 (Academic Rate:
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