1 The Bail-in effect: Does bond yield follow the hierarchy of risk after BRRD? Doriana Cucinelli University of Milano Bicocca Department of Economics and Business Sciences and Law for Economics Via degli Arcinboldi, 8 Milan, 20100, Italy E-mail: doriana.cucinelli@unimib.it Mobile phone: +39-333/3546493 Lorenzo Gai University of Florence Department of Economics and Business Via delle Pandette, 9 Florence, 50127, Italy E-Mail: lorenzo.gai@unifi.it Mobile phone: +39-328/9153073 Federica Ielasi University of Florence Department of Economics and Business Via delle Pandette, 9 Florence, 50127, Italy E-Mail: federica.ielasi@unifi.it Mobile phone: +39-339/8510987 Abstract On January 1 st 2016 the BRRD introduced the Bail-in mechanism which limits government assistance to the Euro- area banks in the case of crisis. Our analysis, based on a sample of 3,886 bonds of 50 banks from 9 Euro-area countries during the period January 31 st 2006 to May 31 st 2017, investigates the impact of the introduction of Bail- in on bank bonds yields. The research compares three different groups of bonds: i) bailinable and non-bailinable bonds; ii) bailinable senior bonds and bailinable subordinated bonds; iii) bailinable subordinated bonds included in Tier 1, Upper Tier 2 or Lower Tier 2 capital. To do this we use Difference-in-Difference methodology. Our results underline that after the Bail-in introduction: i) in the period before BRRD, current bailinable bonds show a higher yield than non-bailinable bonds, which increases significantly after 1 st January 2016; ii) although subordinated bonds display higher yields before 2016 than senior unsecured bonds, after the Bail-in introduction senior unsecured bonds show a higher increase in bond yields, more than that displayed by unsecured subordinated; finally, iii) with regard to the classification between unsecured subordinated bonds, all three classes yield more than the non-bailinable bonds, both before and after the Bail-in introduction. However, bonds with intermediate risks (Upper Tier 2) show a higher increase than bonds with the highest risk (Tier 1) in the period after January 2016.