Bond Demand and the Yield-Exchange Rate Nexus: Risk Premium vs. Convenience Yield Dongchen Zou

Format:

Book

Thesis/Dissertation

Author/Creator:

Zou, Dongchen, author.

Contributor:

University of Pennsylvania. Finance., degree granting institution.

Language:

English

Subjects (All):

0501.

0508.

0617.

0770.

Local Subjects:

0501.

0508.

0617.

0770.

Physical Description:

1 electronic resource (87 pages)

Contained In:

Dissertations Abstracts International 87-07A

Place of Publication:

Ann Arbor : ProQuest Dissertations and Theses, 2025

Language Note:

English

Summary:

This dissertation examines how demand for government bonds jointly affects bond yields and exchange rates. Exploiting government bond auctions from advanced economies to isolate demand shocks, I identify two channels: the risk premium channel, which reduces both bond and currency risk premiums, and the convenience yield channel, which increases the value of domestic safe assets. While both channels suppress yields, they have opposing effects on exchange rates. A preferred-habitat model featuring preference for liquidity demonstrates these mechanisms. The model predicts that higher auction demand lowers yields and strengthens the domestic currency by raising convenience yields. Empirical results validate these predictions. The standard positive yield-exchange rate relation, primarily driven by the risk premium channel, dampens during auctions as bond yields increasingly reflect convenience yields. These findings highlight the pivotal role of liquidity preferences in the joint dynamics of government bonds and exchange rates

Notes:

Advisors: Roussanov, Nikolai Committee members: Huber, Amy Wang; Keller, Lorena; Lewis, Karen

Source: Dissertations Abstracts International, Volume: 87-07, Section: A.

Ph.D. University of Pennsylvania 2025

Vendor supplied data

Local Notes:

School code: 0175

ISBN:

9798276001159

Access Restriction:

Restricted for use by site license