Bond currency denomination and the yen carry tradeChristopher Candelaria, Jose Lopez and Mark Spiegel No 2010-04, Working Paper Series from Federal Reserve Bank of San Francisco Abstract: We examine the determinants of issuance of yen-denominated international bonds over the period from 1990 through 2010. This period was marked by low Japanese interest rates that led some investors to pursue \"carry trades,\" which consisted of funding investments in higher interest rate currencies with low interest rate, yen-denominated obligations. In principle, bond issuers that have flexibility in their funding currency could also conduct a carry-trade strategy by funding in yen during this low interest rate period. We examine the characteristics of firms who appeared to have adopted this strategy using a data set containing almost 80,000 international bond issues. Our results suggest that there was a movement towards issuing in yen in the international bond markets starting in 2003, but this appears to have ended with the outbreak of the global financial crisis in 2007. Furthermore, the breakdown of carry-trade conditions in 2007 corresponds to a resurgence in the ability of economic fundamentals, such as the volume of trade with Japan, to explain the decision to issue international bonds denominated in yen. Keywords: bond markets; Yen, Japanese (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2010-04 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC. |
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