Official Demand for U.S. Debt: Implications for U.S. Real Interest Rates

Iryna Kaminska and Gabriele Zinna

No 2014/066, IMF Working Papers from International Monetary Fund

Abstract: By constructing and estimating a structural arbitrage-free model of demand pressures on US real rates, we find that recent purchases of US government debt securities by the Fed and foreign officials have significantly affected the level and the dynamics of US real rates. In particular, by 2008, foreign purchases of US Treasuries are estimated to have had cumulatively reduced long term real yields by around 80 basis points. The subsequent total impact of Fed purchases in 2008-2012 has been even larger: the quantitative easing (QE) has depressed real 10-year yields by around 140 basis points. Our findings also reveal that the Fed policy interventions and foreign official purchases affect longer term real bonds mostly through a reduction in the bond premium.

Keywords: WP; aggregate demand; central bank; demand factor; Term structure of interest rates; Large Scale Asset Purchases (LSAP); real yield curve; Bayesian estimation; international reserves; demand pressure; Treasury bond yield; TIPS-yields estimate; asset purchase program; Fed purchase; excess supply; yield loading; Fed holding; Securities; Bonds; Treasury bills and bonds; Real interest rates; Yield curve; Asia and Pacific; Global (search for similar items in EconPapers)
Pages: 46
Date: 2014-04-18
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Citations: View citations in EconPapers (9)

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