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Tsvetelina Nenova
- 1 December 2025
- WORKING PAPER SERIES - No. 3159Details
- Abstract
- This paper provides novel empirical evidence on portfolio rebalancing in international bond markets through the prism of investors’ demand for bonds. Using a granular dataset of global government and corporate bond holdings by mutual funds domiciled in the world’s two largest currency areas, I estimate heterogeneous and time varying demand elasticities for bonds. Safe assets such as US Treasuries or German Bunds face especially inelastic demand from investment funds compared to riskier bonds. But spillovers from these safe assets to global bond markets are strikingly different. Funds substitute US Treasuries with global bonds, including risky corporate and emerging market bonds, whereas German Bunds are primarily substitutable within a narrow set of euro area safe government bonds. Substitutability deteriorates in times of stress, impairing the transmission of monetary policy.
- JEL Code
- F30 : International Economics→International Finance→General
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets - Network
- ECB Lamfalussy Fellowship Programme
- 6 January 2025
- THE ECB BLOGWhen returns on safe assets fall, investors move some of their money to riskier assets. This ECB Blog shows: US Treasuries are replaced by global bonds, while German Bunds substitutes are mostly from Europe. This effect is smaller in times of market stress.Details
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets