Convenience Lost

We show long-term Treasury convenience yields are more sensitive to changes in Treasury supply than short-term Treasury convenience yields. The fiscal expansion in the past two decades and the resultant increase in Treasury supply depressed convenience yields heterogeneously across maturities — driving them close to zero for short-term Treasurys and into negative territory for long-term Treasurys. As a result, the aggregate seigniorage revenue earned by the U.S. from issuing safe and liquid financial assets has declined by a third. Issuing only short-term Treasurys could preserve the seigniorage revenue earned from Treasury convenience yields but would expose the government to more rollover risk.