Working Paper: CEPR ID: DP16410
Authors: Annette Vissing-Jorgensen
Abstract: Treasury yields spiked during the initial phase of COVID. The 10-year yield increased by 64 bps from March 9 to 18, 2020, leading the Federal Reserve to purchase $1T of Treasuries in 2020Q1. Fed purchases were causal for reducing Treasury yields based on the timing of purchases (which increased on March 19), the timing of yield reversal and Fed purchases in the MBS market, and evidence against confounding factors. Treasury-QE worked more via purchases than announcements. The yield spike was driven by liquidity needs of mutual funds, foreign official agencies, and hedge funds that were unaffected by the March 15 Treasury-QE announcement.
Keywords: Treasury markets; COVID; Quantitative easing; Federal Reserve
JEL Codes: E5; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Reserve purchases (E52) | treasury yields (E43) |
| timing of Federal Reserve purchases (E52) | treasury yields (E43) |
| liquidity needs (E41) | treasury yield spike (E43) |
| Federal Reserve purchases (E52) | reversal of yield spike (E43) |
| yield spike (E43) | corporate yields (G39) |
| Federal Reserve purchases (E52) | mortgage-backed securities yield reversal (G21) |