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.
File(s): File format is application/pdf https://www.federalreserve.gov/econres/ifdp/files/ifdp1224.pdf
Part of Series: International Finance Discussion Papers
Publication Date: 2018-03-28
Pages: 49 pages