Yield Curve Impacts of Forward Guidance and Maturity Extension Programs

31 Pages Posted: 31 May 2017

See all articles by Jason S. Seligman

Jason S. Seligman

U.S. Department of the Treasury - Office of Economic Policy

Jeffrey Huther

Board of Governors of the Federal Reserve System

Date Written: 2013

Abstract

In 2011 and 2012, the Federal Reserve sold Treasury securities from the short end of the yield curve at the same time it was providing market participants with date-specific assurances that overnight interest rates would not rise. We investigate how these two policies, which had conflicting pricing pressures, were absorbed by the market. We analyze the impacts of sales on the volume and composition of inventories of the Federal Reserve's counterparties, and examine how announcements of accommodative monetary policy affected spreads and prices across maturities. Our results suggest that these two reserve-neutral policies affected interest rates both within and beyond the stated policy periods. The finding that Federal Reserve's sales, conducted during periods of date-based forward guidance, were associated with higher interest rates suggests that the policy effects were not limited to the anticipated path of federal funds rates. We also find that the accumulation of Treasury securities by Federal Reserve counterparties was consistent with the idea that those dealers responded opportunistically to the forward guidance on rates.

Suggested Citation

Seligman, Jason S. and Huther, Jeffrey, Yield Curve Impacts of Forward Guidance and Maturity Extension Programs (2013). FEDS Working Paper No. 2013-72. Available at SSRN: https://ssrn.com/abstract=2976873

Jason S. Seligman

U.S. Department of the Treasury - Office of Economic Policy ( email )

1500 Pennsylvania Avenue
Washington, DC 20220
United States
(202) 622-1683 (Phone)

Jeffrey Huther (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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