Abstract:
We document that the convenience yield of U.S. Treasuries exhibits properties that are consistent with a hedging perspective of safe assets. The convenience yield tends to be low when the covariance of Treasury returns with the aggregate stock market returns is high. A decomposition of the aggregate stock-bond covariance into terms corresponding to the convenience yield, the frictionless risk-free rate, and default risk reveals that the covariance between stock returns and the convenience yield itself drives the effect in a substantive capacity. We show the convenience yield is reduced with heightened inflation expectations that erode the hedging properties of U.S. Treasuries and other fixed-income money-like assets, inducing a switch to alternatives such as gold; it is also reduced immediately prior to debt-ceiling standoffs and with increases in Treasury supply.
About Prof. Viral V. Acharya:
C.V. Starr Professor of Economics
Co-director of the NYU Stern Henry Kaufman Initiative on Financial History, Fall 2023-2026
Deputy Governor, Reserve Bank of India (23rd Jan 2017 to 23rd July 2019)
Language: English
This is a free seminar. Registration is mandatory.
Please note that cold lunch will be provided for registered participants (12h-12h30).
This is a joint event held with the European Stability Mechanism and the Department of Finance of the University of Luxembourg.
