The Aggregate Demand for Treasury Debt

Arvind Krishnamurthy*, Annette Vissing-Jorgensen

*Corresponding author for this work

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    Abstract

    Investors value the liquidity and safety of US Treasuries. We document this by showing that changes in Treasury supply have large effects on a variety of yield spreads. As a result, Treasury yields are reduced by 73 basis points, on average, from 1926 to 2008. Both the liquidity and safety attributes of Treasuries are driving this phenomenon. We document this by analyzing the spread between assets with different liquidity (but similar safety) and those with different safety (but similar liquidity). The low yield on Treasuries due to their extreme safety and liquidity suggests that Treasuries in important respects are similar to money.

    Original languageEnglish
    JournalJournal of Political Economy
    Volume120
    Issue number2
    Pages (from-to)233-267
    Number of pages35
    ISSN0022-3808
    DOIs
    Publication statusPublished - 2012

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