Official Demand for US Debt: Implications for US Real Rates

63 Pages Posted: 6 May 2019

Date Written: May 3, 2019


We estimate a structural term-structure model of US real rates, where arbitrageurs accommodate demand pressures exerted by domestic and foreign official investors. Official demand affects rates by altering the aggregate price of duration risk, and thereby bond risk premiums. While foreign central banks’ demand contributed to reduce long-term real rates mainly in the years prior to the global-financial crisis, the Federal Reserve’s demand lowered rates 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 US Debt: Implications for US Real Rates (May 3, 2019). Bank of England Working Paper No. 796 (2019), Available at SSRN: or

Iryna Kaminska (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Gabriele Zinna

Bank of Italy ( email )

Via Nazionale 91
00184 Roma


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