The Scarcity Value of Treasury Collateral: Repo Market Effects of Security-Specific Supply and Demand Factors

Stefania D’Amico, Roger Fan, and Yuriy Kitsul

We quantify the scarcity value of Treasury collateral by estimating the impact of security-specific demand and supply factors on the specific collateral repo rates of all outstanding U.S. Treasury securities. We find a positive and significant scarcity premium for on- and off-the-run Treasuries that persists for about three months and is larger in magnitude for shorter-term securities. This scarcity effect seems to pass through to Treasury cash market prices, providing additional evidence for the scarcity channel of QE. On the contrary, the Federal Reserve’s reverse repo operations could help reduce the scarcity premium by alleviating potential shortages of high-quality collateral.