Currency matters: Analyzing international bond portfolios

Bonds denominated in the investor's currency are special. We show this indirectly in a global dataset of bilateral bond holdings-indirectly because the global holdings dataset does not differentiate by currency denomination-and then more directly in datasets of US holdings of foreign bonds that do differentiate by currency. We find that the share of a country's bonds denominated in investors' currencies is an important determinant of the amount of cross-border investment it receives; factors associated with greater (or less) cross-border investment in bonds differ by currency denomination; and one phenomenon of international portfolios-the ever-present home bias-in some cases actually disappears when bonds are denominated in the investor's currency, suggesting that the home bias is to some extent a home currency bias.