02548cas a2200325 a 4500 AALejournalIMF022340 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513579016 1018-5941 BD-DhAAL BD-DhAAL Caramichael, John. U.S. Dollar Currency Premium in Corporate Bonds / John Caramichael, Gita Gopinath, Gordon Liao. Washington, D.C. : International Monetary Fund, 2021. 1 online resource (34 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We isolate a U.S. dollar currency premium by comparing corporate bonds issued in the dollar and the euro by firms o utside t he U .S. a nd e uro a rea. We make s everal empirical observations that dissect the perceived advantage of borrowing in the dollar. First, while the dollar dominates global debt issuance, borrowing costs in the dollar are more expensive without a currency hedge and about the same with a currency hedge when compared to the euro. This observed parity in currency-hedged corporate borrowing stands in contrast to the persistent deviation from covered interest parity in risk-free rates. Second, we observe a dollar safety premium in relative hedged borrowing costs, found in the subset of bonds with high credit ratings and short maturities, attributes similar to those of safe sovereigns. Finally, we find that firms flexibly adjust the currency mix of their debt issuance depending on the relative borrowing cost between dollar and euro debt. In sum, the disproportionate demand for U.S. dollar debt is reflected in higher issuance volumes that drive up the currency hedged dollar borrowing costs such that at the margin they equate to euro borrowing costs. Mode of access: Internet Current Account Adjustment imf Financial Markets and the Macroeconomy imf Foreign Exchange imf Open Economy Macroeconomics imf Short-Term Capital Movements imf Gopinath, Gita. Liao, Gordon. IMF Working Papers; Working Paper ; No. 2021/185 Full text available on IMF http://elibrary.imf.org/view/journals/001/2021/185/001.2021.issue-185-en.xml IMF e-Library