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The U.S. Treasury Premium

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  • Du, Wenxin
  • Im, Joanne
  • Schreger, Jesse

Abstract

We quantify the difference in the convenience yield of U.S. Treasuries and government bonds of other developed countries by measuring the deviation from covered interest parity between government bond yields. We call this wedge the “U.S. Treasury Premium.” We document a secular decline in the U.S. Treasury Premium at medium to long maturities. The five-year U.S. Treasury Premium averages approximately 21 basis points prior to the Global Financial Crisis, increases up to 90 basis points during the crisis, and disappears after the crisis with the post-crisis mean at −8 basis points. Meanwhile, the short-term U.S. Treasury Premium remains positive post-crisis. We discuss the impact of sovereign credit risk, foreign exchange swap market frictions, and the relative supply of government bonds on the U.S. Treasury Premium

Suggested Citation

  • Du, Wenxin & Im, Joanne & Schreger, Jesse, 2018. "The U.S. Treasury Premium," Journal of International Economics, Elsevier, vol. 112(C), pages 167-181.
    • Handle: RePEc:eee:inecon:v:112:y:2018:i:c:p:167-181
    DOI: 10.1016/j.jinteco.2018.01.001
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    References listed on IDEAS

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    More about this item

    Keywords

    U.S. Treasuries; Sovereign bonds; Convenience yields;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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