The convenience yield for Treasuries have fallen with supply

There has always been a convenience yield with Treasuries, or that is the belief by most investors. A closer look suggests that this is not case. When there is more Treasury supply relative to GDP, the convenience yield can become negative especially for long-term bonds.

The US Treasury enjoys the special position that it may be able to issue debt cheaper than other countries given the unique position of being a reserve asset with safety and liquidity. This exorbitant privilege creates a convenience yield; however, there may be limits to the degree of privilege or convenience yield based on the supply in the market. The paper, Convenience Lost, shows that the fiscal expansion in the US has led to a fall in yield difference the maturity-matched overnight index swap (OIS) rate and Treasury yield. Since there is greater risk with longer-term Treasury yields, the authors find that the convenience yield decline has been more pronounced with longer-term Treasures. 

The convenience yield demand curve is downward sloping and greater for long-term Treasuries. This change in the convenience yield is useful for explaining relative yields as well as the potential for portfolio allocations.