The Impact of Chinese Purchases of U.S. Government Debt on the Treasury Yield Curve

Authors

Radhames A. Lizardo
Andre V. Mollick, The University of Texas Rio Grande ValleyFollow

Document Type

Article

Publication Date

12-2011

Abstract

Examining monthly data from May of 1985 to May of 2008, we find that increases in Chinese purchases of U.S government debt lead to decreases in Treasury yields. The effect is stronger as the maturity increases: a one percent increase in purchases of U.S. Treasuries by Chinese investors lowers the two-year (ten-year) Treasury yield by 10 to 38 basis points (39 to 55 basis points) on average, ceteris paribus . Overall, the demand-side variable capturing Chinese purchases of U.S. Treasuries improves the cointegrating properties of U.S. interest rates. In-sample and out-of-sample forecasts reinforce that the model with Chinese purchases greatly outperforms basic models of the yield curve. This study has implications for the business world since we document that Chinese investors contribute to lower U.S. Treasury yields and thus to lower U.S. interest rates in general.

Comments

© 2011, Walter de Gruyter. Original published version available at https://doi.org/10.2202/1524-5861.1803.

Recommended Citation

Lizardo, Radhames A., and Andre Varella Mollick. “The Impact of Chinese Purchases of U.S. Government Debt on the Treasury Yield Curve.” Global Economy Journal 11, no. 4 (December, 2011): 1850244. https://doi.org/10.2202/1524-5861.1803.

Publication Title

Global Economy Journal

DOI

10.2202/1524-5861.1803