Official Demand for U.S. Debt: Implications for U.S. Real Interest Rates
IMF Working Papers, April 18, 2014
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- Official Demand for U.S. Debt: Implications for U.S. Real Interest Rates
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Bibliographic details
- Authors: Iryna Kaminska, Gabriele Zinna
- Published: April 18, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475590081.001
Summary
- By constructing and estimating a structural arbitrage-free model of demand pressures on US real rates, the authors 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.
- 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.
- The Fed policy interventions and foreign official purchases affect longer term real bonds mostly through a reduction in the bond premium.
Methodology and Model
- Constructed and estimated a structural arbitrage-free model of demand pressures on US real rates.
- Empirical approach centers on identifying effects of official purchases (Fed and foreign officials) on US real yields and the term structure.
Key Findings and Quantitative Results
- Foreign purchases of US Treasuries by 2008: cumulatively reduced long term real yields by around 80 basis points.
- Fed purchases in 2008-2012 (quantitative easing): depressed real 10-year yields by around 140 basis points.
- Primary channel: reduction in the bond premium explains most of the effect on longer term real bonds.
Subjects and Keywords
- Subject: Bonds, Central bank policy rate, Financial institutions, Financial services, Real interest rates, Securities, Treasury bills and bonds, Yield curve
- Keywords include: aggregate demand, Asia and Pacific, asset purchase program, Bayesian estimation, Bonds, central bank, demand factor, demand pressure, excess supply, Fed holding, Fed purchase, Global, international reserves, Large Scale Asset Purchases (LSAP), Real interest rates, real yield curve, Securities, Term structure of interest rates, TIPS-yields estimate, Treasury bills and bonds, Treasury bond yield, WP, Yield curve, yield loading