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Academic Programs

I show that German Bunds command sizable premia over other Eurozone bonds, even after controlling for default risk with credit default swaps. The size of these premia, which I call convenience yields, varies a lot across countries. Why a large convenience yield would exist within a currency union cannot be explained easily by traditional asset pricing theory. Instead, I show that at the aggregate level the convenience yield is correlated with the composition of the investor base. This is consistent with frameworks where markets are partially segmented geographically and intermediaries face regulatory constraints. In next steps, I hope to be able to pin down the determinants of these frictions using more detailed micro-data in order to shed light on the origins of the convenience yield.