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  5. Market Segmentation and International Bond Prices: The Role of ECB Asset Purchases

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Market Segmentation and International Bond Prices: The Role of ECB Asset Purchases

  • Ester Faia
  • Juliana Salomao
  • Alexia Ventula Veghazy
American Economic Journal: Macroeconomics (Forthcoming)

Abstract

We estimate euro-dollar yields differences, hedged and unhedged, with euro area confidential corporate bond holdings data. We find that euro yields significantly decline relative to dollar, more so for securities in the portfolio of investors that prefer euro-securities and securities eligible for the ECB asset purchase programs. We then test and uncover a negative relation between the estimated yields differentials and the purchases, at aggregate and firm level, stronger for long-term securities and those held by investors with euro denomination preference. Evidence supports a local supply and a duration extraction channel instead of a pure demand channel.

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