DP16410 The Treasury Market in Spring 2020 and the Response of the Federal Reserve

Author(s): Annette Vissing-Jørgensen
Publication Date: July 2021
Keyword(s): COVID, Federal Reserve, Quantitative easing, Treasury markets
JEL(s): E5, G12
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16410

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.