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Granular Treasury Demand with Arbitrageurs

Author

Listed:
  • Jansen, Kristy
  • Li, Wenhao
  • Schmid, Lukas

Abstract

We construct a novel dataset of sector-level U.S. Treasury holdings, covering the majority of the market. Using this dataset, we estimate maturity-specific demand functions and elasticities of different investors and the Fed, and integrate them into a dynamic equilibrium model of the Treasury market with risk-averse arbitrageurs. Quantifying the model reveals that (1) there is a steep downward-sloping term structure of Treasury market elasticity; (2) monetary tightening raises term premia due to arbitrageurs interacting with investors exhibiting high cross-elasticities; (3) QE has limited impact unless the Fed credibly commits to sustained balance sheet expansion.

Suggested Citation

  • Jansen, Kristy & Li, Wenhao & Schmid, Lukas, 2026. "Granular Treasury Demand with Arbitrageurs," CEPR Discussion Papers 21079, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21079
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    File URL: https://cepr.org/publications/DP21079
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    Keywords

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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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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