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Bond market clienteles, the yield curve, and the optimal maturity structure of government debt

Guibaud, Stéphane, Nosbusch, Yves and Vayanos, Dimitri ORCID: 0000-0002-0944-4914 (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

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Identification Number: 10.1093/rfs/hht013

Abstract

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.

Item Type: Article
Official URL: http://rfs.oxfordjournals.org/
Additional Information: © 2013 The Authors
Divisions: Finance
Subjects: H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
JEL classification: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Determination of Interest Rates; Term Structure of Interest Rates
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management
Date Deposited: 23 Apr 2013 12:59
Last Modified: 14 Sep 2024 05:36
Funders: PaulWoolley Centre
URI: http://eprints.lse.ac.uk/id/eprint/37407

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