The Treasury Market in Spring 2020 and the Response of the Federal Reserve
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.
I thank Carol Bertaut, Darrell Duffie, Michael Johannes, Jay Kahn, Anil Kashyap, Andrew Metrick, Hyun Shin, Kairong Xiao and seminar and conference participants at NBER Monetary Economics, Society for Financial Econometrics, Columbia University, London School of Economics, University of California Berkeley, University of Toronto, University of Bonn, Tinbergen Institute, Bocconi, Vanguard, ECB, Board of Governors of the Federal Reserve, Federal Reserve Bank of San Francisco, Bank for International Settlements, Bank of Canada, Bank of England, and the Riksbank for helpful comments. All errors are my own. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.