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Treasury Duration Supply and Term Premiums: Working Paper 2026-11

Author

Listed:
  • Michael McGrane

Abstract

In this paper, I estimate the effect of Treasury duration supply on term premiums with an arbitrage-free dynamic term structure model. I find that a 5 percentage-point increase in Treasury duration supply (which corresponds approximately to a 1 percentage-point increase in the debt-to-GDP ratio) results in a 2.8 basis-point increase in the 10-year term premium. I also show that an expected 5 percentage-point increase in Treasury duration supply 5 years in the future results in an immediate increase in the 10-year term premium of 1 basis point, increasing to 2.8 basis points

Suggested Citation

  • Michael McGrane, 2026. "Treasury Duration Supply and Term Premiums: Working Paper 2026-11," Working Papers 62759, Congressional Budget Office.
    • Handle: RePEc:cbo:wpaper:62759
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    File URL: https://www.cbo.gov/system/files/2026-10/62759-Treasury-Duration-Supply.pdf
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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