The Flight‐to‐Liquidity Premium in U.S. Treasury Bond Prices

2004/07/01 by Francis A. Longstaff · 588 citations
Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Bond #Credit Risk and Financial Regulations #Economics #Finance #Financial Markets and Investment Strategies #Financial system #Geography #Liquidity premium #Liquidity risk #Market liquidity #Monetary economics #Treasury

paper · doi:10.1086/386528

published in The Journal of Business 77(3), 511-526 (University of Chicago Press)

openalex publication_date 2004/07/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04

Abstract

This article examines whether there is a flight-to-liquidity premium in Treasury bond prices by comparing them with prices of bonds issued by Refcorp, a U.S. government agency, which are guaranteed by the Treasury. It finds a large liquidity premium in Treasury bonds, which can be more than 15% of the value of some Treasury bonds. This liquidity premium is related to changes in consumer confidence, the amount of Treasury debt available to investors, and flows into equity and money market mutual funds. This suggests that the popularity of Treasury bonds directly affects their value.

Citations

• Parsimonious Modeling of Yield Curves

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