This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2027
  4. Preliminary Program
  5. The Demand and Supply of U.S. Treasury Securities
« Back to Results

The Demand and Supply of U.S. Treasury Securities

Paper Session

Sunday, Jan. 3, 2027 8:00 AM - 10:00 AM (EST)

Marriott Marquis Washington DC
Hosted By: American Economic Association
  • Chair: Nellie Liang, Brookings Institution

Granular Treasury Demand with Arbitrageurs

Kristy Jansen
,
University of Southern California
Wenhao Li
,
University of Southern California
Lukas Schmid
,
University of Southern California

Abstract

We build a new dataset of sector-level U.S. Treasury holdings and estimate strong cross-maturity substitution in investor demand. We embed these estimates in a dynamic equilibrium model with risk-averse arbitrageurs and obtain two findings. First, Treasury demand is steeply downward sloping across maturities, with especially high elasticity in the T-bill market. A demand system without structurally modeling arbitrageurs instead implies implausibly low T-bill elasticity. Second, strong cross-maturity substitution implies that monetary tightening raises term premia, consistent with the data. Without such substitution, as in the baseline Vayanos-Vila model, the response is predicted to be the opposite.

Anatomy of the Treasury Market: Who Moves Yields?

Manav Chaudhary
,
London School of Economics
Julie Fu
,
Washington University-St. Louis
Haonan Zhou
,
University of Hong Kong

Abstract

We develop an empirically flexible yet tractable model that links Treasury yields to the portfolio decisions of investors. The model measures how sensitive investors are to changes in yields and macroeconomic factors, decomposes yield movements into investor-level drivers, and captures how investor behavior differs around key events. We find that Treasury demand is highly inelastic, with large differences across investors and over time. Since 2008, foreign investors have become far less influential, while the Federal Reserve has played an increasingly important role in shaping yields. During flight-to-safety episodes, domestic—not foreign—investors drive the sharp decline in Treasury yields.

Less Duration, More Durable: How Floating Rate Debt Helps Reduce U.S. Treasury Interest Burden

Anh Le
,
Pennsylvania State University
Haoxiang Zhu
,
Massachusetts Institute of Technology

Abstract

The U.S. government is expected to pay roughly $1 trillion in interest expenses in 2026 on a national debt of about $39 trillion. Managing this interest burden is critical for the sustainability of U.S. fiscal conditions and the long-term health of the Treasury market. Building on a model of interest rates, and adjusting for the liquidity premium and discounts of various types of Treasury securities, we show that greater issuance of floating-rate Treasury securities during periods of elevated term premia, coupled with a commensurate reduction in the issuance of fixed-coupon Treasury securities of the same maturity, can meaningfully reduce the U.S. government’s interest expense. In other words, the U.S. Treasury can save costs by offering less duration when the market places a high premium for bearing duration risk. We also discuss practical considerations for the potential implementation of this approach.

Discussant(s)
Zhengyang Jiang
,
Northwestern University
Anna Cieslak
,
Duke University
Susan McLaughlin
,
Yale University
JEL Classifications
  • G1 - General Financial Markets