# A Theory of Negative Convenience Yields
**Date de l'événement :** 02/04/2025
* Publié le 02/04/2025

### Image(s)
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## Auteur(s)
Jean Fontalirand

## Direction
Paul Bouscasse

## Description
**Ce mémoire est issu de la sélection des meilleurs mémoires du master d’économie de l'année 2024-2025 :  
  
Abstract**  
  
This paper develops a structural model to explain the recent emergence of negative convenience yields (CYs) on sovereign debt, episodes in which government bonds trade at higher yields than synthetic, credit-risk-equivalent alternatives. Previously documented in the U.S., I show that similar yield inversions have also occurred in France, where public debt has recently traded at a discount to credit-equivalent synthetic instruments. I present a dynamic, three-period model in which investors face institutional mandates that mechanically constrain portfolio rebalancing, generating inelastic demand. Liquidity is defined not by the feasibility of trade, but by an asset’s state-contingent resale value. This reinterpretation is particularly relevant when public debt is held for insurance purposes: if prices collapse precisely in adverse states, the asset’s insurance value erodes, even if it remains tradable. When debt issuance increases, whether deterministically or stochastically, mandate-driven segmentation leads to lower resale prices and compresses the convenience yield. Under sufficient supply pressure, this erosion can invert the CY’s sign. The model delivers a tractable decomposition of the preference premium (price equivalent of the CY) and shows that valuation anomalies can persist in equilibrium due to demand inelasticity and the absence of effective arbitrage. Quantitative simulations replicate the CY inversions both observed in France and the U.S. The framework links debt supply dynamics, institutional rigidity, and liquidity premia, offering a unified explanation for how public debt can lose its pricing advantage despite sound fundamentals.  
  
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**Accéder au mémoire en ligne :** [https://www.sciencespo.fr/ecole-recherche/sites/sciencespo.fr.ecole-recherche/files/FONTALIRAND-Jean.pdf](https://www.sciencespo.fr/ecole-recherche/sites/sciencespo.fr.ecole-recherche/files/FONTALIRAND-Jean.pdf)

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`#Anglais` 

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`#Accès libre` 

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