Working Paper

Searching for Yield Abroad : Risk-Taking Through Foreign Investment in U.S. Bonds

Abstract: The risk-taking effects of low interest rates, now prevailing in many advanced countries, \"search-for-yield,\" can be hard to analyze due to both a paucity of data and challenges in identification. Unique, security-level data on portfolio investment into the United States allow us to overcome both problems. Analyzing holdings of investors from 36 countries in close to 15,000 unique U.S. corporate bonds between 2003 and 2016, we show that declining home-country interest rates lead investors to shift their portfolios toward riskier U.S. corporate bonds, consistent with \"search-for-yield\". We estimate even stronger effects when home interest rates reach a low level, suggesting that risk-taking further accelerates.

Keywords: Low interest rates; Risk-taking; Search for yield; Portfolio choice; Corporate debt; Unites States;

JEL Classification: F21; F34; G11; G20;

Access Documents

File(s): File format is application/pdf


Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2018-03-28

Number: 1224

Pages: 49 pages