Unusual Changes in the U.S. Treasury Security Market During the Fourth Round of Quantitative Easing

Kyle D. Allen, Scott E. Hein

Research output: Contribution to journalArticlepeer-review

Abstract

<p> <p id="x-x-x-docs-internal-guid-87174479-7fff-c629-e8ac-7530e996aae1"> The Covid-19 Pandemic and policy response rattled the US Treasury markets. Conventional US Treasuries, inflation adjusted US Treasuries, and the relationship between the two developed in ways such that ignoring changes in real interest rates yielded distorted inflation expectations estimates. Since the beginning of the pandemic, monetary policy kept nominal rates low and close to zero, but positive. Real rates, on the other hand, became increasingly negative. The relationship between the two market rates became negatively correlated, and distorted because of the fourth round of quantitative easing, along with the Fed preventing nominal yields from turning negative. Federal Reserve actions during the Covid-19 pandemic drove a larger wedge between nominal interest rates and real interest rates in the inflation adjusted market. </p></p>
Original languageAmerican English
JournalFinance Faculty Publications and Presentations
StatePublished - 1 Sep 2023

Keywords

  • Break Even Rate
  • Federal Reserve
  • TIPS
  • US Treasuries
  • inflation

EGS Disciplines

  • Finance and Financial Management

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