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The Effect of Foreign and Domestic Demand on U.S. Treasury Yields

Author

Listed:
  • Florian Brugger

    (University of Graz)

Abstract

This paper outlines how foreign and domestic demand for U.S. Treasuries influences long-term Treasury yields. Previous studies outlined and estimated how enormous foreign Treasury purchases put downward pressure on long-term yields. After more than 10 years of heavy foreign demand for U.S. Treasuries, foreign purchases have become sluggish since 2012. Contrary to expectations, Treasury yield rates have not increased as foreign demand has declined. A possible reason for persistently low yield rates is that the demand of domestic institutional investors for Treasuries has changed. It will be shown that domestic institutional investors demand for Treasuries has increased strongly, decreasing yield rates significantly and thus counteracting the drop in foreign demand.

Suggested Citation

  • Florian Brugger, 2017. "The Effect of Foreign and Domestic Demand on U.S. Treasury Yields," Graz Economics Papers 2017-02, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2017-02
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    File URL: https://unipub.uni-graz.at/obvugrveroeff/download/pdf/9556204?originalFilename=true
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    References listed on IDEAS

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    1. repec:grz:wpaper:2015-05 is not listed on IDEAS
    2. repec:grz:wpaper:2014-09 is not listed on IDEAS
    3. repec:grz:wpaper:2016-10 is not listed on IDEAS
    4. Ghosh, Sugata & Wendner, Ronald, 2014. "Positional Preferences, Endogenous Growth, and Optimal Income- and Consumption Taxation," MPRA Paper 60337, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Herold, Florian & Kuzmics, Christoph, 2020. "The evolution of taking roles," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 38-63.
    2. Christoph Zwick, 2018. "On the origin of current account deficits in the Euro area periphery: A DSGE perspective," Graz Economics Papers 2018-02, University of Graz, Department of Economics.

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    2. Hof, Franz X. & Prettner, Klaus, 2019. "The quest for status and R&D-based growth," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 290-307.
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    5. Hof, Franz X. & Prettner, Klaus, 2019. "Relative consumption, relative wealth, and long-run growth: When and why is the standard analysis prone to erroneous conclusions?," Hohenheim Discussion Papers in Business, Economics and Social Sciences 12-2019, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    6. Wendner, Ronald, 2015. "Do positional preferences for wealth and consumption cause inter-temporal distortions?," MPRA Paper 64086, University Library of Munich, Germany.

    More about this item

    Keywords

    Foreign demand Treasury; Domestic demand Treasury; Treasury yields; Capital flows;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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