The U.S. dollar exchange rate clears the global market for dollar-denominated safe assets. We find that shifts in the demand and supply of safe dollar assets are important drivers of variation in the dollar exchange rate, bond yields, and other global financial variables. An increase in the...

The convenience yield that foreign investors derive from holding U.S. Treasurys causes a failure of Covered Interest Rate Parity by driving a wedge between the yield on the foreign bonds and the currency-hedged yield on the U.S. Treasury bonds. Even before the 2007-2009 financial crisis, the...