International Finance Discussion Papers (IFDP)
December 2025
Decoupling Dollar and Treasury Privilege
Wenxin Du, Ritt Keerati, and Jesse Schreger
Abstract:
We document a strong decoupling between the convenience yield on the US Dollar and US Treasuries. We measure the convenience of the U.S. dollar using covered interest parity (CIP) deviations between risk-free bank rates, such as secured overnight rates since the benchmark reform. In parallel, we measure the convenience of U.S. Treasury bonds through CIP deviations between government bond yields. We find a pronounced divergence between the two convenience measures in recent years: while the U.S. dollar exhibits strong convenience post-Global Financial Crisis, the U.S. Treasury convenience has not only declined substantially but has turned negative, most strongly so at medium- to long-term maturities. We argue that the relative supply of government bonds between the US and other developed markets is a key driver of the U.S. Treasury convenience compared to other government bonds. Finally, we present a simple framework with a constrained global financial intermediary to link dollar and Treasury convenience.
Keywords: Safe Assets, Covered Interest Parity, Benchmark Reform
DOI: https://doi.org/10.17016/IFDP.2025.1427
PDF: Full Paper
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