Risk Free Interest Rates
74 Pages Posted: 22 Sep 2018 Last revised: 4 Jan 2021
Date Written: July 24, 2019
We estimate risk-free interest rates unaffected by convenience yields on safe assets. We infer them from risky asset prices without relying on any specific model of risk. We obtain a term structure of convenience yields with maturities up to 2.5 years at a minutely frequency. The convenience yield on treasuries equals about 40 basis points, is larger below 3 months maturity, and quadruples during the financial crisis. In high-frequency event studies, conventional and unconventional monetary stimulus reduce convenience yields, particularly during the crisis. We further study convenience-yield-free CIP deviations, and we show significant bond return predictability related to convenience yields.
Keywords: Demand for Safe Assets, Convenience Yield, Quantitative Easing, Monetary Policy
JEL Classification: E41, E43, E44, G12, G21
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