Financial market implications of the federal debt paydown

Michael Fleming

No 120, Staff Reports from Federal Reserve Bank of New York

Abstract: U.S. Treasury securities fill several crucial roles in financial markets: they are a risk-free benchmark, a reference and hedging benchmark, and a reserve asset to the Federal Reserve and other financial institutions. Many of the features that make the Treasury market an attractive benchmark and reserve asset are likely to be adversely affected by the paydown of the federal debt, and recent developments suggest that this may be happening already. Market participants are responding by moving away from Treasuries as a reference and hedging benchmark toward agency debt securities, corporate debt securities, and interest rate swaps. The Federal Reserve is taking steps to adjust its portfolio and should be able to do so with minimal implications for monetary policy.

Keywords: Treasury market; benchmark; reserve asset; liquidity (search for similar items in EconPapers)
JEL-codes: E43 E52 G12 G14 H63 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2001-03-01
New Economics Papers: this item is included in nep-fmk
Note: For a published version of this report, see Michael J. Fleming, "Financial Market Implications of the Federal Debt Paydown," Brookings Papers on Economic Activity, no.2 (2000): 221-51.
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Citations: View citations in EconPapers (16)

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