Guibaud, Stéphane, Nosbusch, Yves and Vayanos, Dimitri (2013) Bond market clienteles, the yield curve, and the optimal maturity structure of government debt. Review of Financial Studies, 26 (8). pp. 1914-1961. ISSN 0893-9454
We propose a clientele-based model of the yield curve and optimal maturity structure of government debt. Clienteles are generations of agents at different lifecycle stages in an overlapping-generations economy. An optimal maturity structure exists in the absence of distortionary taxes and induces efficient intergenerational risksharing. If agents are more risk-averse than log, then an increase in the long-horizon clientele raises the price and optimal supply of long-term bonds—effects that we also confirm empirically in a panel of OECD countries. Moreover, under the optimal maturity structure, catering to clienteles is limited and long-term bonds earn negative expected excess returns.
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