CEF.UP – FIN Seminar/Webinar

Thursday – March 7^th, 2024 at 1:00 p.m. | Room 305| Online

“Service Flows in Euro Area Corporate Bonds” (joint work with Felix Corell and Melina Papoutsi)

Lira Mota  – MIT Sloan School of Management (United States of America)

Abstract:

“Investors place value on financial assets not only for their cash flows but also for the additional services they offer, such as acting as a reliable store of value, serving as collateral, and meeting capital and liquidity requirements. These services have traditionally been valued as “convenience yields,” a reduced-form measure that is silent about the potentially multifaceted nature of these service flows. By analyzing detailed price and holdings data of the euro area corporate bond market, this paper reveals the persistent variations in convenience yields across different sector portfolios, with banks, insurance companies, and pension funds leading, and the lowest yields noted in foreign-held portfolios. Notably, post-ECB corporate quantitative easing, the ECB’s portfolio emerged with the highest convenience yield. Our findings suggest that factors such as collateral value, regulatory capital requirements, and liquidity needs are primary drivers of convenience yields in Euro area corporate bonds. Furthermore, it highlights the importance of service flows for the transmission of monetary policy.”