This presentation explores the nature of safe assets in emerging markets. Investors derive non-pecuniary benefits from the safety and liquidity of U.S. Treasuries, and therefore carry a “convenience yield”. Convenience yields have made their way into macroeconomics in several areas:
- Fiscal capacity analysis
- Exchange rates
- Channel of unconventional monetary policy, and
- Drivers of global financial flows
In the past 20 years, some EMEs have deepened the local-currency sovereign debt market and have substantially improved their credit ratings.
This research asks: Does local-currency sovereign debt in Emerging Markets carry this convenience yield? What are their properties as Safe Assets?