The Aggregate Demand for Treasury Debt

The Aggregate Demand for Treasury Debt

By
Arvind Krishnamurthy, Annette Vissing-Jorgensen
Journal of Political Economy. April
2012, Vol. 120, Issue 2, Pages 233-267

Investors value the liquidity and safety of US Treasuries. We document this by showing that changes in Treasury supply have large effects on a variety of yield spreads. As a result, Treasury yields are reduced by 73 basis points, on average, from 1926 to 2008. Both the liquidity and safety attributes of Treasuries are driving this phenomenon. We document this by analyzing the spread between assets with different liquidity (but similar safety) and those with different safety (but similar liquidity). The low yield on Treasuries due to their extreme safety and liquidity suggests that Treasuries in important respects are similar to money.

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