Decoupling Dollar and Treasury Privilege

Wenxin Du, Ritt Keerati and Jesse Schreger

No 35000, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document a strong decoupling between the convenience yield on the U.S. dollar and U.S. Treasuries. We measure the convenience of the U.S. dollar using covered interest parity (CIP) deviations between risk-free bank rates, such as secured overnight rates since the benchmark reform. In parallel, we measure the convenience of U.S. Treasury bonds through CIP deviations between government bond yields. We find a pronounced divergence between the two convenience measures in recent years: while the U.S. dollar exhibits strong convenience post-Global Financidecoupal Crisis, the U.S. Treasury convenience has not only declined substantially but has turned negative, most strongly so at medium- to long-term maturities. We argue that the relative supply of government bonds between the US and other developed markets is a key driver of the U.S. Treasury convenience compared to other government bonds. Finally, we present a simple framework with a constrained global financial intermediary to link dollar and Treasury convenience.

Date: 2026-03
Note: AP EFG IFM ME
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Working Paper: Decoupling Dollar and Treasury Privilege (2025)
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