Impact of Foreign Official Purchases of US Treasuries on the Yield Curve

Erin Wolcott

AEA Papers and Proceedings, 2020, vol. 110, 535-40

Abstract: Foreign governments went from owning a tenth of publicly available US Treasury notes and bonds in 1985 to over half in 2008. Recently, foreign governments have reduced their positions. I find foreign official purchases have depressed medium-term yields, despite conventional wisdom pointing toward the long end of the yield curve. To examine effects over the entire yield curve, I embed a structural vector autoregression of macroeconomic variables into an affine term structure model. With segments of the yield curve increasingly determined by international financial markets, it may be more difficult for the Federal Reserve to implement its interest rate policy.

JEL-codes: E43 E52 E58 F34 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1257/pandp.20201124

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