Intermediary Balance Sheets and the Treasury Yield Curve

Wenxin Du, Benjamin Hebert and Wenhao Li

No 30222, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document a regime change in the Treasury market post-Global Financial Crisis (GFC): dealers switched from net short to net long Treasury bonds. We construct “net-long” and “netshort” curves that account for balance sheet and financing costs, and show that actual yields moved from the net short curve pre-GFC to the net long curve post-GFC. Our theory shows the regime shift caused negative swap spreads and co-movement among swap spreads, dealer positions, and covered-interest-parity violations. Furthermore, the effects of various monetary and regulatory policies are regime-dependent. We highlight Treasury supply as a plausible driver of this regime shift.

JEL-codes: F3 G12 G15 G2 (search for similar items in EconPapers)
Date: 2022-07
New Economics Papers: this item is included in nep-acc and nep-fmk
Note: AP IFM ME
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Citations: View citations in EconPapers (9)

Published as Wenxin Du & Benjamin Hébert & Wenhao Li, 2023. "Intermediary balance sheets and the treasury yield curve," Journal of Financial Economics, vol 150(3).

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Journal Article: Intermediary balance sheets and the treasury yield curve (2023)
Working Paper: Intermediary Balance Sheets and the Treasury Yield Curve (2022)
Working Paper: Intermediary Balance Sheets and the Treasury Yield Curve (2022)
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