Tariff War Shock and the Convenience Yield of US Treasuries — A Hedging Perspective

Viral Acharya and Toomas Laarits

No 34640, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explain how the “Tariff War” shock of April 2025 affected the safe-asset status of US Treasuries. Convenience yield erosion for long bonds is consistent with a reduction in the hedging property, reflected in a rising stock-bond covariance. Decomposing the Treasury yield into risk-free rate, credit spread, and convenience yield components reveals that covariance due to the convenience yield component increased for long bonds. The short end of the Treasury curve, however, continued to exhibit the safe-asset hedging property. These effects are consistent with a withdrawal of safe-asset investors from long-term Treasuries and a rotation towards shorter-term Treasuries and gold.

JEL-codes: E4 E5 F3 G11 G12 G15 (search for similar items in EconPapers)
Date: 2026-01
Note: AP IFM ME
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34640.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:34640

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34640
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().