Financial Implications of the Shrinking Supply of U.S. Treasury Securities

IMF Working Papers, May 1, 2001

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Recent improvements in fiscal positions in advanced countries have sharply curtailed the issuance of government securities and created the possibility that government securities could disappear in some countries.
The possibility that this might occur in the United States has attracted the most attention, in large part because of the international role of the U.S. dollar and the widespread perception that U.S. treasury securities have the lowest total financial risk (the combination of credit, market, and liquidity risks) among U.S. dollar assets.
The paper analyzes the unique features of government securities and links them to the important roles that government securities, in particular U.S. treasury securities, have come to play in national and international financial markets.
The paper identifies and examines financial market-oriented public policy questions raised by the shrinking supply of U.S. treasuries.

Unique features of government securities:
- Emphasis on the perceived lowest total financial risk among U.S. dollar assets (combination of credit, market, and liquidity risks).
- Role in national and international financial markets derived from those risk and liquidity characteristics.
Market implications examined:
- Links between shrinking supply of U.S. treasury securities and the functions they serve in financial markets.
- Potential consequences for market participants that rely on U.S. treasury securities as benchmark, reserve, or collateral assets.
Public policy questions raised:
- Financial market–oriented policy questions related to how shrinking Treasury supply might affect liquidity, pricing, and the broader functioning of financial markets.
- Examination focuses on implications for market structure and the roles of government securities rather than on fiscal policy mechanics.

Subject: Credit risk, Financial institutions, Financial markets, Financial services, Government securities, Securities, Securities markets, Yield curve
Keywords: financial market, financial markets, fixed income, Global, global bond, government securities, Government securities, market participant, public debt, Securities, Securities markets, treasury securities, U.S. dollar, U.S. treasury securities, WP, Yield curve

Financial Implications of the Shrinking Supply of U.S. Treasury Securities - WP/01/61
- Financial Implications of the Shrinking Supply of U.S. Treasury Securities - WP/01/61 (Markdown version)
- Financial Implications of the Shrinking Supply of U.S. Treasury Securities - WP/01/61 (PDF)