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Searching for yield abroad: risk-taking through foreign investment in U.S. bonds

John Ammer, Alexandra Tabova and Caleb Wroblewski

No 687, BIS Working Papers from Bank for International Settlements

Abstract: The risk-taking effects of low interest rates, now prevailing in many advanced countries, ("search-for-yield") are hard to analyze due to both a paucity of data and challenges in identification. Unique, security-level data on portfolio investment into the United States allow us to overcome both problems. Analyzing holdings of investors from 36 countries in close to 15,000 unique U.S. corporate bonds between 2003 and 2016, we show that declining home-country interest rates lead investors to shift their international bond portfolios toward riskier U.S. corporate bonds, consistent with "search-for-yield". We estimate even stronger effects when home interest rates reach a low level, suggesting that risk-taking in securities accelerates as rates decline.

Keywords: low interest rates; search for yield; portfolio choice; corporate debt (search for similar items in EconPapers)
JEL-codes: F21 F34 G11 G20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk
Date: 2018-01
References: View references in EconPapers View complete reference list from CitEc
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