The time-varying U.S. treasury bond demand elasticity

Abstract

We investigate the time-varying demand elasticity of U.S. Treasury bonds in the international financial market using a TVP-VAR-SV model. We find that the demand elasticity decreases when the risk of the international financial market rises but increases when the risk of the U.S. financial market rises, though the demand elasticity is not significantly different from that during the financial crisis. Our findings suggest that the U.S. Treasury bonds have market power and convenience yields as safe assets in the international financial market, but they also face competition from other countries’ bonds.