The Effect of Foreign and Domestic Demand on U.S. Treasury Yields

Florian Brugger ()
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Florian Brugger: University of Graz

No 2017-02, Graz Economics Papers from University of Graz, Department of Economics

Abstract: This paper outlines how foreign and domestic demand for U.S. Treasuries influences long-term Treasury yields. Previous studies outlined and estimated how enormous foreign Treasury purchases put downward pressure on long-term yields. After more than 10 years of heavy foreign demand for U.S. Treasuries, foreign purchases have become sluggish since 2012. Contrary to expectations, Treasury yield rates have not increased as foreign demand has declined. A possible reason for persistently low yield rates is that the demand of domestic institutional investors for Treasuries has changed. It will be shown that domestic institutional investors demand for Treasuries has increased strongly, decreasing yield rates significantly and thus counteracting the drop in foreign demand.

Keywords: Foreign demand Treasury; Domestic demand Treasury; Treasury yields; Capital flows (search for similar items in EconPapers)
JEL-codes: E43 E44 F21 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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