Official Demand for U.S. Debt: Implications for U.S. Real Rates

94 Pages Posted: 29 Jul 2014 Last revised: 21 Dec 2018

Date Written: December 20, 2018


We estimate a structural term-structure model in which arbitrageurs accommodate demand pressures exerted by domestic and foreign official investors, as well as supply pressures. These pressures can affect real rates by altering the aggregate price of duration risk, thus through changes in bond risk premiums. While foreign-official pressures contributed to reduce long-term real rates mainly in the years prior to the global-financial crisis, Fed's pressures materialized during the QE period. Overall, the two-factor model, augmented to account for changing liquidity conditions, offers a good representation of real rates during the 2001-2016 period; however, we flag some caveats and possible extensions.

Keywords: term structure of real rates; quantitative easing; global imbalances; Bayesian econometrics

JEL Classification: F31, G10

Suggested Citation

Kaminska, Iryna and Zinna, Gabriele, Official Demand for U.S. Debt: Implications for U.S. Real Rates (December 20, 2018). Available at SSRN: or

Iryna Kaminska

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Gabriele Zinna (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma


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