FLOW AND STOCK EFFECTS OF LARGE-SCALE TREASURY PURCHASES: EVIDENCE ON THE IMPORTANCE OF LOCAL SUPPLY

By Stefania D’Amico, Thomas B. King. 2012

326 citations recorded by the source corpus.

The Federal Reserve’s 2009 program to purchase $300 billion of US Treasury securities represented an unprecedented intervention in the Treasury market and provides a natural experiment with the potential to shed light on the price elasticities of Treasuries and theories of supply effects in the term structure. Using security-level data on Treasury prices and quantities during the course of this program, we document a ‘local supply’ effect in the yield curve—yields within a particular maturity sector responded more to changes in the amounts outstanding in that sector than to similar changes in other sectors. We find that this phenomenon was responsible for a persistent downward shift in yields averaging about 30 basis points over the course of the program (the “stock effect”). In addition, except at very long maturities, purchase operations caused an average decline in yields in the sector purchased of 3.5 basis points on the days when those operations occurred (the “flow effect”). The sensitivity of our results to security characteristics generally supports a view of segmentation or imperfect substitution within the Treasury market during this time.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/0cdfdc16f68a88bf71b7ce0594e36a28bbe33fc5

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Citations in the corpus

The Impact of the Federal Reserve's Large-Scale Asset Purchase Programs on Corporate Credit Risk (2013, unknown): “(4)Using the micro-level approach of D’Amico and King [2013], Meaning and Zhu [2011] find similar effects for the Bank of England’s Asset Purchase Facility.”
Central bank announcements of asset purchases and the impact on global financial and commodity markets (2012, background): “However, the Federal Reserve’s intentions had been signaled 3 A detailed description of the Federal Reserve asset-purchasing program is provided in D’Amico and King (2010).”
The impact of the ECB's conventional and unconventional monetary policies on stock markets (2016, background): “3 Some previous studies have shown that QE affects asset prices through other than the signalling channel, such as stock versus flow effects (D'Amico and King, 2013) and duration and local supply effects (Cahill et al.”
The large scale asset purchases had large international effects (2010, unknown): “2 D’Amico and King (2013) find small (3.5 basis point) flow effects of LSAP operations on specific Treasury issues.”