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The Interest Rate Effects of Government Debt Maturity: Solving the Bond Conundrum

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  • Jagjit S. Chadha
  • Philip Turner
  • Fabrizio Zampolli

Abstract

Using an empirical model, this paper finds that shortening the average maturity of US Treasury debt held outside the Federal Reserve by 1 year reduces the 5‐year forward 10‐year yield by between 130 and 150 basis points. Based on a pre‐crisis period, these estimates suggest portfolio balance effects are unlikely to reflect only post‐crisis market conditions. These findings also offer a partial explanation for the Greenspan conundrum: the fact that long‐term interest rates in the mid‐2000s rose less than expected after a rise in the Fed funds rate may have been due, to some extent, to the concomitant shortening of government debt maturity.

Suggested Citation

  • Jagjit S. Chadha & Philip Turner & Fabrizio Zampolli, 2025. "The Interest Rate Effects of Government Debt Maturity: Solving the Bond Conundrum," The World Economy, Wiley Blackwell, vol. 48(8), pages 1863-1880, August.
    • Handle: RePEc:bla:worlde:v:48:y:2025:i:8:p:1863-1880
    DOI: 10.1111/twec.13716
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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