Working Paper: NBER ID: w26138
Authors: Jules H. Van Binsbergen; William F. Diamond; Marco Grotteria
Abstract: We estimate risk-free interest rates unaffected by convenience yields on safe assets. We infer them from risky asset prices without relying on any specific model of risk. We obtain a term structure of convenience yields with maturities up to 2.5 years at a minutely frequency. The convenience yield on treasuries equals about 40 basis points, is larger below 3 months maturity, and quadruples during the financial crisis. In high-frequency event studies, conventional and unconventional monetary stimulus reduce convenience yields, particularly during the crisis. We further study convenience-yield-free CIP deviations, and we show significant bond return predictability related to convenience yields.
Keywords: risk-free interest rates; convenience yields; monetary policy; quantitative easing
JEL Codes: E41; E43; E44; E52; E58; G12; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary policy (E52) | convenience yields (D11) |
| quantitative easing (QE) (C54) | convenience yields (D11) |
| quantitative easing (QE) (C54) | liquidity of safe assets (E41) |
| risk-free interest rates (E43) | convenience yields (D11) |
| bond return predictability (G12) | dynamics of convenience yields (C69) |
| convenience-yield-free interest rates (E43) | violations of covered interest parity (CIP) (F31) |