Unconventional Monetary Policy Spillovers and the (In)convenience of Treasuries

Foreign monetary policy shocks increasingly influence U.S. yields, particularly since the Global Financial Crisis. We show that this heightened sensitivity reflects both the adoption of unconventional monetary policy tools and a decline in the convenience of Treasuries. Using high frequency identification, we find that when Treasuries command a low convenience premium—behaving more like other assets—they respond more to ECB monetary policy, consistent with increased sensitivity to portfolio rebalancing. A two-country preferred-habitat model with time-varying covariance of yields rationalizes these results: when Treasuries are less convenient, they become closer substitutes for foreign equivalents, amplifying cross-border transmission of policy shocks.