International Finance Discussion Papers (IFDP)

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March 2018

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

John Ammer, Stijn Claessens, Alexandra Tabova, and Caleb Wroblewski

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.

Accessible materials (.zip)

Keywords: low interest rates, risk-taking, search for yield, portfolio choice, corporate debt, United States

DOI: https://doi.org/10.17016/IFDP.2018.1224

PDF: Full Paper

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Last Update: January 09, 2020