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 (2011) Bond market clienteles, the yield curve and the optimal maturity structure of government debt. Financial Markets Group Discussion Papers (669). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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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 life cycle 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. But while a welfare-maximizing government caters to clienteles, it does not accommodate fully their demand, and limits issuance of long-term bonds to a level where these earn negative expected excess returns.

Item Type:	Monograph (Working Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2011 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance
JEL classification:	H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management
Date Deposited:	01 Nov 2010 12:51
Last Modified:	01 Apr 2024 07:57
URI:	http://eprints.lse.ac.uk/id/eprint/29785

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