NBER WORKING PAPER SERIES SOVEREIGN DEBT PORTFOLIOS, BOND RISKS, AND THE CREDIBILITY OF MONETARY POLICY Wenxin Du Carolin E. Pflueger Jesse Schreger Working Paper 22592 http://www.nber.org/papers/w22592 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 September 2016 We are grateful to Mark Aguiar, Daniel Andrei, Adrien Auclert (discussant), John Campbell, Lorenzo Garlappi, Joshua Gottlieb, Juan Carlos Hatchondo (discussant), Tarek Hassan, Oleg Itskhoki, Thomas Mertens, Vincenzo Quadrini (discussant), Julio Rotemberg, Rosen Valchev (discussant), Adrien Verdelhan, Jenny Tang, Pierre Yared, and seminar participants at AEA 2016, UCLA Anderson, Columbia University, Stanford GSB, MIT Sloan, the 8th Macro-Society Meeting, NBER Summer Institute, UC Santa Barbara, the San Francisco Federal Reserve, the Federal Reserve Bank of Chicago, the Bank for International Settlements, and the University of British Columbia for helpful comments. Jiri Knesl, Sandra Ramirez, George Vojta, and Nanyu Chen provided excellent research assistance. Pflueger thanks MIT Sloan and Stanford GSB for their hospitality and UBC for research funding while working on this research. Schreger thanks the Princeton Economics Department for their hospitality during the research process and the Harvard Business School Division of Research for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w22592.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2016 by Wenxin Du, Carolin E. Pflueger, and Jesse Schreger. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.