The Aggregate Demand for Treasury Debt

Investors value the liquidity and safety of US Treasuries. We document\nthis by showing that changes in Treasury supply have large effects on\na variety of yield spreads. As a result, Treasury yields are reduced by\n73 basis points, on average, from 1926 to 2008. Both the liquidity and\nsafety attributes of Treasuries are driving this phenomenon. We document\nthis by analyzing the spread between assets with different liquidity\n(but similar safety) and those with different safety (but similar\nliquidity). The low yield on Treasuries due to their extreme safety and\nliquidity suggests that Treasuries in important respects are similar to\nmoney.