%0 Journal Article %A Peng Zhang %T Relative Shortage of Long-Term Treasury Securities and the Flat Yield Curve %D 2019 %R 10.3905/jfi.2019.1.078 %J The Journal of Fixed Income %P jfi.2019.1.078 %X This article investigates the linkage between the interest rates term spread and the relative supply factor of long-term Treasury securities since the Debt Ceiling Crisis of 2013. The spread between the long-term Treasury yield and the Federal Funds Rate is defined as the excess return of holding long-term Treasury securities over liquid money. Evidences show that the supply factor has some significant impacts on the term spread between the 10-year yield and the Federal Funds rate. These effects include long-run causality effect and persistent positive shock. The supply factor explains over a half of the term spread variation at longer horizons. The effects of the supply factor are stronger for the long-term part of the spread. So the recent flattening of the yield curve is partially attributable to the restrictions on the long-term financing of the government. Considering this mechanism, if Congress and the government reach agreements on some other long-term financing tools, the long-term Treasury yields, and the term spread may rise unexpectedly.TOPICS: Fundamental equity analysis, accounting and ratio analysis, technical analysis %U https://jfi.pm-research.com/content/iijfixinc/early/2019/10/10/jfi.2019.1.078.full.pdf