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Market Segmentation and International Bond Prices: The Role of ECB Asset Purchases

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  • Ester Faia
  • Juliana Salomao
  • Alexia Ventula Veghazy

Abstract

We estimate euro-dollar yields differences, hedged and unhedged, with euro area confidential corporate bond holdings data. We find that euro yields significantly decline relative to dollar yields—more for securities in the portfolios of investors that prefer eurosecurities and securities eligible for the European Central Bank asset purchase programs. We then test and uncover a negative relation between the estimated yields differentials and purchases at the aggregate and firm level—stronger for long-term securities and those held by investors with a euro-denomination preference. Evidence supports a local supply and duration extraction channel instead of a pure demand channel.

Suggested Citation

  • Ester Faia & Juliana Salomao & Alexia Ventula Veghazy, 2025. "Market Segmentation and International Bond Prices: The Role of ECB Asset Purchases," American Economic Journal: Macroeconomics, American Economic Association, vol. 17(4), pages 391-421, October.
    • Handle: RePEc:aea:aejmac:v:17:y:2025:i:4:p:391-421
    DOI: 10.1257/mac.20220404
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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