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Risk-Free Interest Rates

William Diamond, Marco Grotteria and Jules H. van Binsbergen

No 13899, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We estimate risk-free interest rates unaffected by convenience yields on safe assets. We infer them from risky asset prices without relying on any specific model of risk. We obtain a term structure of convenience yields with maturities up to 2.5 years at a minutely frequency. The convenience yield on treasuries equals about 40 basis points, is larger below 3 months maturity, and quadruples during the financial crisis. In high-frequency event studies, conventional and unconventional monetary stimulus reduce convenience yields, particularly during the crisis. We further study convenience-yield-free CIP deviations, and we show significant bond return predictability related to convenience yields.

Keywords: Convenience Yield; Demand for Safe Assets; monetary policy; Quantitative easing (search for similar items in EconPapers)
JEL-codes: E41 E43 E44 G12 G21 (search for similar items in EconPapers)
Date: 2019-07
New Economics Papers: this item is included in nep-mac and nep-mon
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