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

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  • Stéphane Guibaud
  • Yves Nosbusch
  • Dimitri Vayanos

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18922.

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Date of creation: Mar 2013
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Publication status: published as Stéphane Guibaud & Yves Nosbusch & Dimitri Vayanos, 2013. "Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt," Review of Financial Studies, Society for Financial Studies, vol. 26(8), pages 1914-1961.
Handle: RePEc:nbr:nberwo:18922

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Cited by:
  1. Edouard Challe & François Le Grand & Xavier Ragot, 2013. "Incomplete markets, liquidation risk, and the term structure of interest rates," PSE Working Papers hal-00843147, HAL.

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