The U.S. Treasury Premium

Wenxin Du, Joanne Im, Jesse Schreger

NBER Working Paper No. 23759
Issued in August 2017
NBER Program(s):Asset Pricing, International Finance and Macroeconomics, Monetary Economics

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.

A non-technical summary of this paper is available in the October 2017 NBER Digest.  You can sign up to receive the NBER Digest by email.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w23759

Published:

• The U.S. Treasury Premium, Wenxin Du, Joanne Im, Jesse Schreger. in NBER International Seminar on Macroeconomics 2017, Frankel, Rey, and Engel. 2018
• Wenxin Du & Joanne Im & Jesse Schreger, 2018. "The U.S. Treasury Premium," Journal of International Economics, .