Glut or Gluttony: Global Saving as the Determinant of U.S. Treasury Yields in the 2000s

Abstract

I estimate the impact of Federal Reserve and foreign government holdings of Treasury securities on interest rates during the 2000s using market share data for both short- and long-term Treasury securities. Controlling for yield volatility, business cycles and government debt issuance, I find that the increase in foreign governments’ share of the Treasury securities market significantly impacted both short- and long-term Treasury yields. Specifically, the increase in foreign government market share from 2000 to 2007 decreased the real effective federal funds rate by 159 to 235 basis points and the real 10-year Treasury yield by 93 to 148 basis points.