Unusual Changes in the U.S. Treasury Security Market During the Fourth Round of Quantitative Easing

Kyle D. Allen () and Scott Hein
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Kyle D. Allen: Boise State University, Boise, Idaho, USA

Journal of Central Banking Theory and Practice, 2023, vol. 12, issue 3, 5-22

Abstract: The Covid-19 Pandemic and policy response rattled the US Treasury markets. Conventional US Treasuries, inflation adjusted US Treasuries, and the relationship between the two developed in ways such that ignoring changes in real interest rates yielded distorted inflation expectations estimates. Since the beginning of the pandemic, monetary policy kept nominal rates low and close to zero, but positive. Real rates, on the other hand, became increasingly negative. The relationship between the two market rates became negatively correlated, and distorted because of the fourth round of quantitative easing, along with the Fed preventing nominal yields from turning negative. Federal Reserve actions during the Covid-19 pandemic drove a larger wedge between nominal interest rates and real interest rates in the inflation adjusted market.

Keywords: US Treasuries; Break Even Rate; Inflation; TIPS; Federal Reserve. (search for similar items in EconPapers)
JEL-codes: E4 E5 G21 G23 G28 (search for similar items in EconPapers)
Date: 2023
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