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MNI BRIEF: US Treasuries Seen Increasingly Risky-JH Paper

Treasuries didn't trade like a global safe haven, researchers presenting at KC Fed's Jackson Hole conference find.

U.S. government bonds did not trade as the world's safe haven asset during Covid and in the years since investors have come to see American debt as more risky, with implications for Treasury market functioning and future Federal Reserve QE programs, according to research presented Friday to the Kansas City Fed's annual economic symposium in Jackson Hole,

"During COVID, U.S. Treasurys were not trading as the world’s safe asset of choice, but rather, Treasurys were trading much like the sovereign bonds issued by other mature economies. Towards the end of the sample, AAA corporates are priced as close substitutes for long-dated Treasurys," authors Roberto Gomez-Cram, Howard Kung, and Hanno Lustig wrote in the paper. "Treasury investors seem to have shifted to the risky debt model when pricing Treasurys" and policymakers "should internalize this shift when assessing whether bond markets are functioning properly."

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U.S. government bonds did not trade as the world's safe haven asset during Covid and in the years since investors have come to see American debt as more risky, with implications for Treasury market functioning and future Federal Reserve QE programs, according to research presented Friday to the Kansas City Fed's annual economic symposium in Jackson Hole,

"During COVID, U.S. Treasurys were not trading as the world’s safe asset of choice, but rather, Treasurys were trading much like the sovereign bonds issued by other mature economies. Towards the end of the sample, AAA corporates are priced as close substitutes for long-dated Treasurys," authors Roberto Gomez-Cram, Howard Kung, and Hanno Lustig wrote in the paper. "Treasury investors seem to have shifted to the risky debt model when pricing Treasurys" and policymakers "should internalize this shift when assessing whether bond markets are functioning properly."

Keep reading...Show less