Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265327 
Year of Publication: 
2022
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 11/2022
Publisher: 
Bank of Finland, Helsinki
Abstract: 
A convenience yield represents a difference between yield on a safe bond and yield on a synthetic safe bond, constructed by combining a risky bond with a CDS contract. We explain the shapes of eurozone sovereign convenience curves using a model in which arbitrageurs face higher funding costs on bonds with credit risk and bond demand shocks induce funding risk. We provide novel causal evidence for our mechanism using variation in funding costs generated through exogenous haircut category changes. Changes in convenience yields represent a key transmission channel of unconventional monetary policy to bond yields.
Subjects: 
Sovereign bond convenience yields
money markets
asset pricing with frictions
monetary policy
JEL: 
G12
G15
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-417-8
Document Type: 
Working Paper

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