TY - JOUR T1 - Relative Shortage of Long-Term Treasury Securities and the Flat Yield Curve JF - The Journal of Fixed Income SP - 68 LP - 76 DO - 10.3905/jfi.2019.1.078 VL - 29 IS - 3 AU - Peng Zhang Y1 - 2019/12/31 UR - https://pm-research.com/content/29/3/68.abstract N2 - 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 ER -