CBR Briefing #77

A line chart showing the share of all corporate borrowing outside company’s home country, with percentages on the y-axis and financial quarters from 2005 to 2016 on the x-axis. One line showing bond issued in US dollars starts below fifty percent then begins to rise in the third quarter of 2008 toward sixty percent. A second line showing bonds issued in euros starts above thirty percent then begins to drop at the same time in 2008 toward twenty percent.

Bond investors looking abroad prefer their home currency, or US dollar

  • Investors may be more averse to currency risk than previously thought, holding most of their bond portfolio in securities issued in their own currency, according to research by Harvard’s Matteo Maggiori, Chicago Booth’s Brent Neiman, and Columbia’s Jesse Schreger.
  • The researchers analyzed international capital flows from investors’ purchases of corporate securities, using a data set of $27 trillion in investment positions.
  • Investors favor domestic-currency bonds but make an exception for bonds issued in US dollars when lending to foreign borrowers. The research finds that most foreign investment is denominated either in the investor’s local currency or in US dollars.
  • The US dollar’s dominance in cross-border holdings of corporate bonds has surged since the 2007–10 global financial crisis, while the euro’s share has lost ground.

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