A Look at Convenience Yields around the World

William Diamond and Peter Van Tassel

No 20231003, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: This post estimates “convenience yields” for government debt in ten of the G11 currencies based on analysis from a recent paper. As in our companion post, we measure convenience yields with option-implied box rate data that is estimated from options traded on the main stock market index in each country. We find that a country’s average convenience yield is closely related to its level of interest rates. In addition, we find that average covered interest parity (CIP) deviations are roughly the same across countries when they are measured with box rates. We rationalize these findings with a model in which convenience yields depend on domestic financial intermediaries, but CIP deviations depend on international arbitrageurs funded with dollar debt.

Keywords: risk-free rates; Treasuries; Convenience Yield; Covered interest rate parity (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2023-10-03
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