IDEAS home Printed from https://ideas.repec.org/a/eee/moneco/v124y2021icp19-47.html
   My bibliography  Save this article

The Treasury Market in Spring 2020 and the Response of the Federal Reserve

Author

Listed:
  • Vissing-Jorgensen, Annette

Abstract

Treasury yields spiked during the initial phase of COVID. The 10-year yield increased by 64 bps from March 9 to 18, 2020, leading the Federal Reserve to purchase $1T of Treasuries in 2020Q1. Fed Treasury purchases were causal for reducing Treasury yields based on (1) the timing of purchases (which increased on March 19), (2) evidence against confounding factors, and (3) the timing of yield reversal and Fed purchases in the MBS market. Treasury-QE worked more via purchases than announcements. The yield spike was driven by liquidity needs of mutual funds, foreign official agencies, and hedge funds that were unaffected by the March 15, 2020 Treasury-QE announcement.

Suggested Citation

  • Vissing-Jorgensen, Annette, 2021. "The Treasury Market in Spring 2020 and the Response of the Federal Reserve," Journal of Monetary Economics, Elsevier, vol. 124(C), pages 19-47.
    • Handle: RePEc:eee:moneco:v:124:y:2021:i:c:p:19-47
    DOI: 10.1016/j.jmoneco.2021.10.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304393221001185
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jmoneco.2021.10.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2012. "The Aggregate Demand for Treasury Debt," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 233-267.
    2. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 215-287.
    3. He, Zhiguo & Nagel, Stefan & Song, Zhaogang, 2022. "Treasury inconvenience yields during the COVID-19 crisis," Journal of Financial Economics, Elsevier, vol. 143(1), pages 57-79.
    4. Andreas Schrimpf & Hyun Song Shin & Vladyslav Sushko, 2020. "Leverage and margin spirals in fixed income markets during the Covid-19 crisis," BIS Bulletins 2, Bank for International Settlements.
    5. Valentin Haddad & Alan Moreira & Tyler Muir, 2020. "When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the Fed’s Response," NBER Working Papers 27168, National Bureau of Economic Research, Inc.
    6. Simon Gilchrist & Bin Wei & Vivian Z. Yue & Egon Zakrajšek, 2024. "The Fed Takes on Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF," Working Papers 24-2, Federal Reserve Bank of Boston.
    7. Daniel Barth & Jay Kahn, 2020. "Basis Trades and Treasury Market Illiquidity," Briefs 20-01, Office of Financial Research, US Department of the Treasury.
    8. Simon Gilchrist & Bin Wei & Vivian Z. Yue & Egon Zakrajšek, 2020. "The Fed Takes On Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF," FRB Atlanta Working Paper 2020-18, Federal Reserve Bank of Atlanta.
    9. Falato, Antonio & Goldstein, Itay & Hortaçsu, Ali, 2021. "Financial fragility in the COVID-19 crisis: The case of investment funds in corporate bond markets," Journal of Monetary Economics, Elsevier, vol. 123(C), pages 35-52.
    10. Matthias Fleckenstein & Francis A Longstaff & Stijn Van Nieuwerburgh, 2020. "Renting Balance Sheet Space: Intermediary Balance Sheet Rental Costs and the Valuation of Derivatives [Measuring systemic risk]," Review of Financial Studies, Society for Financial Studies, vol. 33(11), pages 5051-5091.
    11. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 215-287.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ron Alquist & Karlye Dilts Stedman & R. Jay Kahn, 2022. "Foreign Reserve Management and U.S. Money Market Liquidity: A Cost of Exorbitant Privilege," Research Working Paper RWP 22-08, Federal Reserve Bank of Kansas City.
    2. Darrell Duffie & Michael J. Fleming & Frank M. Keane & Claire Nelson & Or Shachar & Peter Van Tassel, 2023. "Dealer Capacity and U.S. Treasury Market Functionality," Staff Reports 1070, Federal Reserve Bank of New York.
    3. Onofrio Panzarino, 2023. "Investor behavior under market stress:evidence from the Italian sovereign bond market," Temi di discussione (Economic working papers) 33, Bank of Italy, Economic Research and International Relations Area.
    4. Forbes, Kristin & Friedrich, Christian & Reinhardt, Dennis, 2023. "Stress relief? Funding structures and resilience to the covid shock," Journal of Monetary Economics, Elsevier, vol. 137(C), pages 47-81.
    5. Ralf R. Meisenzahl & Karen M. Pence, 2022. "Crisis Liquidity Facilities with Nonbank Counterparties: Lessons from the Term Asset-Backed Securities Loan Facility," Finance and Economics Discussion Series 2022-021, Board of Governors of the Federal Reserve System (U.S.).
    6. Busetto, Filippo, 2024. "Asymmetric expectations of monetary policy," Bank of England working papers 1058, Bank of England.
    7. Sirio Aramonte & Andreas Schrimpf & Hyun Song Shin, 2023. "Non-bank financial intermediaries and financial stability," Chapters, in: Refet S. Gürkaynak & Jonathan H. Wright (ed.), Research Handbook of Financial Markets, chapter 7, pages 147-170, Edward Elgar Publishing.
    8. Sebastian Doerr & Egemen Eren & Semyon Malamud, 2023. "Money Market Funds and the Pricing of Near-Money Assets," Swiss Finance Institute Research Paper Series 23-04, Swiss Finance Institute.
    9. Thomas M. Eisenbach & Anna Kovner & Michael Junho Lee, 2022. "When It Rains, It Pours: Cyber Risk and Financial Conditions," Staff Reports 1022, Federal Reserve Bank of New York.
    10. Orkideh Gharehgozli & Sunhyung Lee, 2022. "Money Supply and Inflation after COVID-19," Economies, MDPI, vol. 10(5), pages 1-14, April.
    11. Riedler, Jesper & Koziol, Tina, 2021. "Scaling, unwinding and greening QE in a calibrated portfolio balance model," ZEW Discussion Papers 21-086, ZEW - Leibniz Centre for European Economic Research.
    12. Semeyutin, Artur & Downing, Gareth, 2022. "Co-jumps in the U.S. interest rates and precious metals markets and their implications for investors," International Review of Financial Analysis, Elsevier, vol. 81(C).
    13. Guillermo Calvo & Andrés Velasco, 2021. "Joined at the hip: monetary and fiscal policy in a liquidity-dependent world," BIS Working Papers 967, Bank for International Settlements.
    14. Egemen Eren & Philip Wooldridge, 2021. "Non-bank financial institutions and the functioning of government bond markets," BIS Papers, Bank for International Settlements, number 119.
    15. Sirio Aramonte & Andreas Schrimpf & Hyun Song Shin, 2023. "Margins, debt capacity, and systemic risk," BIS Working Papers 1121, Bank for International Settlements.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Valentin Haddad & Alan Moreira & Tyler Muir, 2021. "When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the Fed’s Response [Funding value adjustments]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5309-5351.
    2. He, Zhiguo & Nagel, Stefan & Song, Zhaogang, 2022. "Treasury inconvenience yields during the COVID-19 crisis," Journal of Financial Economics, Elsevier, vol. 143(1), pages 57-79.
    3. Jiakai Chen & Haoyang Liu & Asani Sarkar & Zhaogang Song, 2020. "Dealers and the Dealer of Last Resort: Evidence from the Agency MBS Markets in the COVID-19 Crisis," Staff Reports 933, Federal Reserve Bank of New York.
    4. Alessandro Rebucci & Jonathan S. Hartley & Daniel Jiménez, 2022. "An Event Study of COVID-19 Central Bank Quantitative Easing in Advanced and Emerging Economies," Advances in Econometrics, in: Essays in Honor of M. Hashem Pesaran: Prediction and Macro Modeling, volume 43, pages 291-322, Emerald Group Publishing Limited.
    5. Nozawa, Yoshio & Qiu, Yancheng, 2021. "Corporate bond market reactions to quantitative easing during the COVID-19 pandemic," Journal of Banking & Finance, Elsevier, vol. 133(C).
    6. Mahyar Kargar & Benjamin Lester & David Lindsay & Shuo Liu & Pierre-Olivier Weill & Diego Zúñiga, 2021. "Corporate Bond Liquidity during the COVID-19 Crisis [The day coronavirus nearly broke the financial markets]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5352-5401.
    7. Boyarchenko, Nina & Kovner, Anna & Shachar, Or, 2022. "It’s what you say and what you buy: A holistic evaluation of the corporate credit facilities," Journal of Financial Economics, Elsevier, vol. 144(3), pages 695-731.
    8. Falato, Antonio & Goldstein, Itay & Hortaçsu, Ali, 2021. "Financial fragility in the COVID-19 crisis: The case of investment funds in corporate bond markets," Journal of Monetary Economics, Elsevier, vol. 123(C), pages 35-52.
    9. Cesa-Bianchi, Ambrogio & Czech, Robert & Eguren Martin, Fernando, 2021. "Dash for Dollars," CEPR Discussion Papers 16415, C.E.P.R. Discussion Papers.
    10. Andrieș, Alin Marius & Ongena, Steven & Sprincean, Nicu, 2021. "The COVID-19 Pandemic and Sovereign Bond Risk," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    11. Goldstein, Michael A. & Namin, Elmira Shekari, 2023. "Corporate bond liquidity and yield spreads: A review," Research in International Business and Finance, Elsevier, vol. 65(C).
    12. Simon Gilchrist & Bin Wei & Vivian Z. Yue & Egon Zakrajšek, 2024. "The Fed Takes on Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF," Working Papers 24-2, Federal Reserve Bank of Boston.
    13. Viral V. Acharya & Ryan N. Banerjee & Matteo Crosignani & Tim Eisert & Renée Spigt, 2022. "Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels," Staff Reports 1004, Federal Reserve Bank of New York.
    14. Bordo, Michael D. & Duca, John V., 2022. "How new Fed corporate bond programs cushioned the Covid-19 recession," Journal of Banking & Finance, Elsevier, vol. 136(C).
    15. Bin Wei, 2022. "Quantifying "Quantitative Tightening" (QT): How Many Rate Hikes Is QT Equivalent To?," FRB Atlanta Working Paper 2022-8, Federal Reserve Bank of Atlanta.
    16. Camelia Minoiu & Rebecca Zarutskie & Andrei Zlate, 2021. "Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program," Finance and Economics Discussion Series 2021-078, Board of Governors of the Federal Reserve System (U.S.).
    17. Zakrajsek, Egon & Gilchrist, Simon & Wei, Bin & Yue, Vivian, 2020. "The Fed Takes on Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF," CEPR Discussion Papers 15258, C.E.P.R. Discussion Papers.
    18. Roy Havemann & Henk Janse van Vuuren & Daan Steenkamp & Rossouw van Jaarsveld, 2022. "The bond market impact of the South African Reserve Bank bond purchase programme," Working Papers 11024, South African Reserve Bank.
    19. Pegoraro, Stefano & Montagna, Mattia, 2021. "Issuance and valuation of corporate bonds with quantitative easing," Working Paper Series 2520, European Central Bank.
    20. Valentin Haddad & Alan Moreira & Tyler Muir, 2020. "When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the Fed’s Response," NBER Working Papers 27168, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Treasury bonds; COVID; Federal Reserve; quantitative easing;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:124:y:2021:i:c:p:19-47. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.