Bond Convenience Yields in the Eurozone Currency Union

Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh and Mindy Xiaolan

No 34307, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a monetary union, the risk-free rate cannot adjust to country-level fiscal positions, leaving only default spreads and convenience yields to respond. Empirically, we find that convenience yields explain a large share of the variation in Eurozone sovereign bond yields. Eurozone sovereign bonds earn larger convenience yields when their governments run larger surpluses. Since convenience yields generate substantial seigniorage revenue from debt issuance, our estimates imply economically large fiscal costs from low convenience yields for peripheral countries in the Eurozone.

JEL-codes: E42 F33 G15 (search for similar items in EconPapers)
Date: 2025-10
Note: AP EFG IFM ME
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Working Paper: Bond Convenience Yields in the Eurozone Currency Union (2021)
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