Treasury Supply Shocks: Propagation Through Debt Expansion and Maturity Adjustment

Huixin Bi, Maxime Phillot and Sarah Zubairy

No RWP 26-04, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: Historically high debt-to-GDP levels in the United States have raised concerns about future financial market stability and fiscal sustainability. We use high-frequency data and consider Treasury futures price changes within narrow windows around auction announcements to identify two distinct Treasury supply shocks: debt expansion shocks that capture changes in the level of public debt, and maturity extension shocks that reflect changes in the maturity structure. We find that debt expansion shocks raise yields across the curve by increasing term premia, leading to tighter financial conditions. These shocks crowd out private sector activity by reducing investment and production, particularly during periods of rapid debt growth. In contrast, maturity extension shocks steepen the yield curve while lowering credit risk premia and fiscal uncertainty. By reducing risk premia, these shocks stimulate near-term investment and production, even as higher long-term borrowing costs weigh on longer-horizon investment. We also show that the Treasury debt management policy can either reinforce or offset the Federal Reserve’s asset purchase programs.

Keywords: Treasury supply; shocks; debt maturity; term premium (search for similar items in EconPapers)
JEL-codes: E44 E63 H63 (search for similar items in EconPapers)
Pages: 79
Date: 2026-04-10
New Economics Papers: this item is included in nep-fdg and nep-ifn
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Working Paper: Treasury Supply Shocks: Propagation Through Debt Expansion and Maturity Adjustment (2026)
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DOI: 10.18651/RWP2026-04

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