This paper studies the effects of deficit financed government spending in an open economy New Keynesian model with safe asset demand for government debt. An increase in government debt lowers convenience yields, leading to a depreciation in the US Dollar. Convenience yield driven exchange rate depreciations mean that deficit financed fiscal expansions have a larger effect on output and inflation compared to standard models. This mechanism is consistent with differences in the effect of government purchases on exchange rates: the US Dollar depreciates in response to government purchases shocks, in contrast to other advanced economies.