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Has Quantitative Easing Affected the U.S. Treasury Auction Market?

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  • Catherine Mann

  • Oren Klachkin

Abstract

A dataset of every U.S. Treasury auction from 2003 to 2012 investigates how Federal Reserve policy of quantitative easing (QE) affects the high-yield at Treasury auctions. Market structural factors known in advance (Federal funds rate, Standard and Poor’s, Chicago Board Option Exchange Market Volatility Index) are significant for the auction high-yield, but the relationships change with QE. The Federal-funds rate is less correlated to bills high-yield during QE. Before QE, equity market and risk channels have the same relationship to bond and bill high-yields. During QE, correlations tighten for bond high-yields, but drop dramatically for bills. Auction-specific bid-cover is more strongly negatively associated with bills high-yield during QE. indirect bidders (a proxy for foreign central banks) may put relatively more downward pressure on bond high-yields. The changes in these correlations could affect borrowing costs and Fed balance sheet exposure going forward. Copyright International Atlantic Economic Society 2015

Suggested Citation

  • Catherine Mann & Oren Klachkin, 2015. "Has Quantitative Easing Affected the U.S. Treasury Auction Market?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(1), pages 135-146, March.
    • Handle: RePEc:kap:atlecj:v:43:y:2015:i:1:p:135-146
    DOI: 10.1007/s11293-014-9446-y
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    References listed on IDEAS

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other

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