Treasury bonds during more stable periods, it shrinks.īut critically, the convenience yield can also differ across investors, such as when foreign investors value the convenience and safety of U.S. During periods of instability, it increases, as investors flee to the safety of U.S. This yield changes over time, he explains. “The idea is that the dollar has some quality: being the most safe asset in the world, being liquid so you can easily trade with people,” says Jiang. dollars as opposed to, say, Euros or other relatively safe assets. Treasuries-is known as a “convenience yield.” You can think of it as the market value of the convenience and peace of mind that comes with investing in U.S. That difference-essentially the yield that investors are willing to forgo when they purchase U.S. “When the U.S government raises funds from foreign investors, it’s funding rate is usually from 0.2 percent to 1 percent lower than comparable funding rates from similar foreign governments, once we account for their exchange-rate differences,” says Jiang. can pay lower interest rates on its bonds. As such, they are prized by investors-meaning the U.S. Treasuries are generally seen as the safest investment in the world. To make sense of these findings, it’s important to understand that U.S. More broadly, their research quantifies the “specialness” of the dollar-and explores its consequences for the global economy. “The special demand for safe assets, and dollar safe assets in particular, is closely related to exchange rates,” says Jiang, who teamed up with Arvind Krishnamurthy and Hanno Lustig, both of Stanford, on the research.
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