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

Author

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  • 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: http://www100.uni-graz.at/vwlwww/forschung/RePEc/wpaper/2017-02.pdf
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    References listed on IDEAS

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    1. Porfirio Guevara & Robert Hill & Michael Scholz, 2017. "Hedonic indexes for public and private housing in Costa Rica," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 10(1), pages 140-155, February.
    2. Ghosh, Sugata & Wendner, Ronald, 2014. "Positional Preferences, Endogenous Growth, and Optimal Income- and Consumption Taxation," MPRA Paper 60337, University Library of Munich, Germany.
    3. Karl W. Steininger & Wolf D. Grossmann & Iris Grossmann, 2016. "The economic value of dispatchable solar electricity: a Post-Paris evaluation," Graz Economics Papers 2016-10, University of Graz, Department of Economics.
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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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    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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