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

57 Pages Posted: 25 Jan 2018

See all articles by John Ammer

John Ammer

U.S. Federal Reserve Board of Governors

Stijn Claessens

Bank for International Settlements (BIS)

Alexandra Tabova

Board of Governors of the Federal Reserve System

Caleb Wroblewski

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 5, 2018

Abstract

The risk-taking effects of low interest rates, now prevailing in many advanced countries, ("search-for-yield") are 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 international bond 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 in securities accelerates as rates decline.

Keywords: low interest rates, search for yield, portfolio choice, corporate debt

JEL Classification: F21, F34, G11, G20

Suggested Citation

Ammer, John Matthew and Claessens, Stijn and Tabova, Alexandra and Wroblewski, Caleb, Searching for Yield Abroad: Risk-Taking Through Foreign Investment in U.S. Bonds (January 5, 2018). BIS Working Paper No. 687. Available at SSRN: https://ssrn.com/abstract=3106478

John Matthew Ammer (Contact Author)

U.S. Federal Reserve Board of Governors ( email )

20th & C Streets NW
Washington, DC 20551
United States
202-452-2349 (Phone)
202-452-6424 (Fax)

Stijn Claessens

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Alexandra Tabova

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Caleb Wroblewski

University of Chicago - Booth School of Business

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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