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Research Details
Bond Convenience Yields in the Eurozone Currency Union
Abstract
This paper analyzes bond convenience yields in a currency union. The intertemporal government budget constraint requires member countries' bond convenience yields and default spreads to adjust in response to shocks to their government surpluses. In the data, adjustments to convenience yields explain a larger fraction of the variation in Eurozone bond yields than default spreads. Higher convenience yields are correlated with stronger fiscal conditions both in the cross-section and in the time series. These findings imply large fiscal costs especially on the peripheral countries. If all Eurozone countries could have issued sovereign bonds at the same convenience yields as Germany, they would have raised an extra 281 billion euros in cumulative revenues from bond issuance between 2003 and 2020, representing 2.6% of 2020 Eurozone GDP.
Type
Working Paper
Author(s)
Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh, Mindy Xiaolan
Date Published
2022
Citations
Jiang, Zhengyang, Hanno Lustig, Stijn Van Nieuwerburgh, and Mindy Xiaolan. 2022. Bond Convenience Yields in the Eurozone Currency Union.
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