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Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt

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  • Guibaud, Stéphane
  • Nosbusch, Yves
  • Vayanos, Dimitri

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9407.

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Date of creation: Mar 2013
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Handle: RePEc:cpr:ceprdp:9407

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Keywords: clientele effects; debt management; government debt; interest rates; preferred habitat;

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Cited by:
  1. Challe, E. & Le Grand, F. & Ragot, X., 2010. "Incomplete markets, liquidation risk, and the term structure of interest rates," Working papers 301, Banque de France.

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