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Working Paper
Treasury Supply Shocks: Propagation Through Debt Expansion and Maturity Adjustment
Historically high debt-to-GDP levels in the United States have raised concerns about future financial market stability and fiscal sustainability. We use high-frequency data and consider Treasury futures price changes within narrow windows around auction announcements to identify two distinct Treasury supply shocks: debt expansion shocks that capture changes in the level of public debt, and maturity extension shocks that reflect changes in the maturity structure. We find that debt expansion shocks raise yields across the curve by increasing term premia, leading to tighter financial conditions. ...
Discussion Paper
Treasury Bill Supply and ON RRP Investment
Take-up at the Federal Reserve’s Overnight Reverse Repo Facility (ON RRP) increased from a few billion dollars in January 2021 to around $2.6 trillion at the end of December 2022. In this post, based on a recent Staff Report, we explain how the supply of U.S. Treasury bills (T-bills) affects the decision of money market mutual funds (MMFs) to invest at the facility. We show that MMFs responded to a reduction in T-bill supply by increasing their take-up at the ON RRP, helping to explain the increased overall take-up.