Step 1 of 5
Map who holds what
Combine holdings for major investor sectors across short-, intermediate-, and long-term Treasuries.
Methodology
How holdings and demand estimates determine yields
The analysis combines reported holdings, estimated sector demand, and an equilibrium model that accounts for shock persistence.
The estimation sequence
The analysis separates observed data, estimated demand, and model counterfactuals.
The analysis begins with reported holdings, estimates investor demand, and then embeds those estimates in an equilibrium model. Keeping those stages separate makes the counterfactuals easier to interpret.
Observed
Holdings, supply, yields, and macroeconomic conditions in the data.
Estimated
How each investor’s holdings move with yields and economic conditions.
Counterfactual
The model-implied allocation and yield change after a specified shock.
Model fit
The model is estimated using both Treasury yields and dealer and hedge-fund positions.
Observed yields help pin down the model’s pricing relationships. Observed dealer and hedge-fund positions help pin down how much Treasury risk these intermediaries can absorb.
Joint fit to yields and positions
Model fitObserved yield4.18%
Macro-only model4.33%
Full model4.33%
The macro-and-policy block captures broad yield movements. Adding latent demand shocks improves the fit most visibly at longer maturities.
Model fit
Interpretation: This is in-sample model fit, not out-of-sample validation. Treasury yields and dealer and hedge-fund positions both enter the joint estimation objective.
Source: Dissecting Treasury Market Resilience, Appendix Figures A2–A3. Sample: 2011Q4–2024Q4.
Headline finding
Arbitrageurs sharply limit the price impact of T-bill demand shocks.
Own-maturity price impact is the percentage change in prices of Treasuries in a maturity bucket after a latent demand shock to that same bucket. Each shock equals 1% of the bucket’s outstanding supply; price changes in other maturity buckets are excluded. For the T-bill bucket (less than one year), removing dealers and hedge funds makes this price impact 75.2 times larger.
Own-maturity price impact with and without arbitrageurs
Model comparisonSelected maturity · Less than 1 year
Short-maturity Treasuries
What this tab shows: A latent demand change equal to 1% of T-bills outstanding hits the T-bill bucket. The measure is the resulting percentage change in T-bill prices only.
The shock is to the T-bill bucket, and the response measures only the resulting change in T-bill prices. Removing dealers and hedge funds makes this response 75.2 times larger. Their ability to absorb short-term imbalances at near-zero duration cost is a major source of T-bill market stability.
With arbitrageurs (dealers and hedge funds)1.0×Benchmark own-maturity price impact.
Without arbitrageurs75.2×Own-maturity price impact relative to the benchmark.
75.2× larger own-maturity price impact without dealers and hedge funds, revealing their especially large role in the T-bill market.
Own-maturity price-impact ratios without versus with dealers and hedge funds: Short 75.2 times; Intermediate 9.3 times; Long 3.5 times.
Model comparison
Interpretation: Removing arbitrageurs increases the T-bill own-maturity price impact 75.2 times, compared with 9.3 times at intermediate maturities and 3.5 times at long maturities. Their price-stabilizing role is therefore largest in the T-bill market, where they can absorb imbalances at near-zero duration cost.
Source: Granular Treasury Demand with Arbitrageurs, Table 4, “Price Impact of Latent Demand Shocks with and without Arbitrageurs.” Each latent-demand shock equals 1% of outstanding supply in one maturity bucket. Panel (a) includes arbitrageurs, Panel (b) removes them, and Panel (c) divides Panel (b) by Panel (a). The displayed ratios are Panel (c)’s diagonal elements, which measure the price change in the same maturity bucket as the shock and exclude price responses at other maturities. Short maturity is less than one year. Sample: 2011Q4–2022Q4.
Forward-looking demand
Persistent demand changes affect current yields and later shock exposure.
A permanent foreign withdrawal changes both yields now and the investors holding Treasuries when inflation later changes. A change in the expected Fed policy rule alters future demand even if current holdings fall by the same amount. These are forward-looking equilibrium effects, not just a reassignment of today’s bonds.
Compare the scenarios