Market Segmentation and International Bond Prices

We estimate euro-dollar yields differences, hedged and unhedged, with euro area confidential corporate bond holdings data. We find that euro yields significantly decline relative to dollar yields—more for securities in the portfolios of investors that prefer euro securities and securities eligible for the European Central Bank asset purchase programs. We then test and uncover a negative relation between the estimated yields differentials and purchases at the aggregate and firm level—stronger for long-term securities and those held by investors with a euro-denomination preference. Evidence supports a local supply and duration extraction channel instead of a pure demand channel.