The Aggregate Demand for Treasury Debt

Arvind Krishnamurthy; Annette Vissing-Jorgensen

doi:10.1086/666526

The Aggregate Demand for Treasury Debt

Arvind Krishnamurthy^*, Annette Vissing-Jorgensen

^*Corresponding author for this work

Northwestern University

Research output: Contribution to journal › Journal article › Research › peer-review

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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 language	English
Journal	Journal of Political Economy
Volume	120
Issue number	2
Pages (from-to)	233-267
Number of pages	35
ISSN	0022-3808
DOIs	https://doi.org/10.1086/666526
Publication status	Published - 2012

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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.",

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AB - 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.

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