The U.S. Treasury Premium

Working Paper No. 23759 We quantify the difference in the convenience yield of U.S. Treasuries and the bonds of near default-free sovereigns by measuring the gap between the FX swap-implied dollar yield paid by foreign governments and the U.S. Treasury dollar yield. We call this wedge the “U.S. Trea...

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Bibliographic Details
Published in:NBER Working Paper Series 2017-08, p.23759
Main Authors: Du, Wenxin, Im, Joanne, Schreger, Jesse
Format: Article
Language:English
Subjects:
American dollar
Bond issues
Bond ratings
Collateral
Credit ratings
Credit risk
Economic crisis
Economic theory
Federal Reserve monetary policy
GDP
Government
Government bonds
Gross Domestic Product
International finance
Swap arrangements
Treasuries
Treasury bills
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Summary:Working Paper No. 23759 We quantify the difference in the convenience yield of U.S. Treasuries and the bonds of near default-free sovereigns by measuring the gap between the FX swap-implied dollar yield paid by foreign governments and the U.S. Treasury dollar yield. We call this wedge the “U.S. Treasury Premium.” We find that this premium was approximately 21 basis points for five-year bonds prior to the Global Financial Crisis, increased up to 90 basis points during the crisis, and has disappeared since the crisis with the post-crisis mean at -8 basis points. We show the decline in the premium cannot be explained away by credit risk or FX swap market mispricings. In addition, we present evidence that the relative supply of government bonds in the United States and foreign countries affects the premium.
ISSN:0898-2937
DOI:10.3386/w23759