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  5. U.S. Treasury Auctions: A High Frequency Identification of Supply Shocks

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

U.S. Treasury Auctions: A High Frequency Identification of Supply Shocks

  • Maxime Phillot
American Economic Journal: Macroeconomics (Forthcoming)

Abstract

We identify Treasury supply shocks using auction data, interpreting changes in futures prices around announcements as shocks to expected supply. We isolate the component of futures price variations pertaining to U.S. Treasury announcements between 1998 and 2020. We study how supply affects financial markets through local projections, using shocks as instruments. We show that increases in Treasury supply cause an upward shift of the yield curve fueled partly by a higher term premium. Stock prices decline, volatility climbs and corporate bond yields increase. The risk premium rises, the equity premium falls, inflation expectations soar and the liquidity premium decreases.

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