The Interest Rate Effects of Government Debt Maturity: Solving the Bond Conundrum

Jagjit Chadha (), Philip Turner and Fabrizio Zampolli

Janeway Institute Working Papers from Faculty of Economics, University of Cambridge

Abstract: Using an empirical model, this paper finds that shortening the average maturity of US Treasury debt held outside the Federal Reserve by one year reduces the five-year forward 10-year yield by between 130 and 150 basis points. Based on a pre-crisis period, these estimates suggest portfolio balance effects are unlikely to reflect only post-crisis market conditions. These findings also offer a partial explanation for the Greenspan conundrum: the fact that long-term interest rates in the mid-2000s rose less than expected after a rise in the Fed fund rate may have been due, to some extent, to the concomitant shortening of government debt maturity.

Keywords: Long-term Interest Rate; Sovereign Debt Management; Portfolio Balance Effects; Quantitative Easing (search for similar items in EconPapers)
JEL-codes: E43 E52 E63 (search for similar items in EconPapers)
Date: 2025-04-11
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Working Paper: The Interest Rate Effects of Government Debt Maturity: Solving the Bond Conundrum (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camjip:2511

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