Diminishing treasury convenience premiums: Effects of dealers’ excess demand and balance sheet constraints

Sven Klingler and Suresh Sundaresan

Journal of Monetary Economics, 2023, vol. 135, issue C, 55-69

Abstract: After the global financial crisis, the yields of U.S. Treasury bills frequently exceed other risk-free rate benchmarks, thereby pointing to a diminishing convenience premium. Constructing a new measure of dealers’ balance sheet constraints for providing intermediation in U.S. Treasury markets, we trace these diminishing convenience premiums to primary dealers’ ability to act as intermediaries. Even after accounting for Treasury supply, levels of interest rates, and other controls, falling excess demand of primary dealers in Treasury auctions, their increased Treasury holdings, and balance sheet constraints post-2015, remain key variables in explaining the diminishing convenience premiums.

Keywords: Convenience premium; Primary dealers; Risk-free rates; Treasury auctions; OIS (search for similar items in EconPapers)
JEL-codes: D44 D53 G12 G14 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:135:y:2023:i:c:p:55-69

DOI: 10.1016/j.jmoneco.2023.01.002

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