European investors’ demand for dollar denominated bonds
In this paper, Faia et al. examine European investors demand for home and for international bonds. They use a dataset with securities level information on holdings of all bonds issued by non-financial corporations held in the euro area for the period 2013-2021. They examine investors holding patterns and document that different types of institutional investors have distinct preferences for bond’s currency denomination and issuer country. They find:
- Euro denominated securities reached 75% of the holdings;
- Mutual funds and investment funds in the euro area are major investors in dollar denominated bonds. By contrast, pension funds and insurance companies tend to be nearly fully invested in euro-denominated bonds;
- Overall they find that there is a shift of convenience yield from the dollar to the euro.
Granular Investors and International Bond Prices: Scarcity-Induced Safety
Authors: Ester Faia, Juliana Salomao, Alexia Ventula Veghazy
From: Goethe University Frankfurt, University of Minnesota, ECB
Are foreign investors willing to forego large returns in order to hold onto U.S. Treasury securities?
In this paper, Tabova and Warnock use a confidential security-level surveys, a novel dataset on the size, flows, coupon payments, and returns of the US Treasuries portfolios of foreign and US investors in order to examine foreigners’ Treasuries portfolios. they find:
Foreigners do not buy Treasuries when they are expensive; dollar-weighted returns that capture the timing and volume of purchases show that both private and official foreigners outperform US investors. And private foreign investors do not have inelastic demand; they are price sensitive, increasing purchases of Treasuries and the duration of their Treasury portfolios when non-US sovereign yields are low or decrease relative to Treasury yields.
Foreign Investors and US Treasuries
Authors: Alexandra M. Tabova, Francis E. Warnock
From: Board of Governors of the Federal Reserve System, University of Virginia
