Unusual changes in the U.S. Treasury security market during the fourth round of quantitative easing

The Covid-19 Pandemic and policy response rattled the USTreasury markets. Conventional US Treasuries, inflation adjustedUS Treasuries, and the relationship between the two developed inways such that ignoring changes in real interest rates yielded dis-torted inflation expectations estimates. Since th...

Full description

Saved in:
Bibliographic Details
Published in:Journal of Central Banking Theory and Practice (Podgorica) 2023-09, Vol.12 (3), p.5-22
Main Authors: Allen, Kyle D, Hein, Scott E
Format: Article
Language:English
Subjects:
Break Even Rate
Consumer Price Index
COVID-19
Deflation
Federal funding
Federal funds rate
Federal Reserve
Federal Reserve monetary policy
G21
G23
G28
Inflation
Inflation rates
Interest rates
Pandemics
Purchasing power
Securities markets
TIPS
Treasuries
US Treasuries
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The Covid-19 Pandemic and policy response rattled the USTreasury markets. Conventional US Treasuries, inflation adjustedUS Treasuries, and the relationship between the two developed inways such that ignoring changes in real interest rates yielded dis-torted inflation expectations estimates. Since the beginning of thepandemic, monetary policy kept nominal rates low and close tozero, but positive. Real rates, on the other hand, became increasing-ly negative. The relationship between the two market rates becamenegatively correlated, and distorted because of the fourth round ofquantitative easing, along with the Fed preventing nominal yieldsfrom turning negative. Federal Reserve actions during the Covid-19pandemic drove a larger wedge between nominal interest rates andreal interest rates in the inflation adjusted market.
ISSN:2336-9205
1800-9581
2336-9205
DOI:10.2478/jcbtp-2023-0022