Do preferred habitat investors exist? Evidence from the UK government bond market

The existence of investors with non-pecuniary preferences for particular assets is central to the rationale and efficacy of unconventional monetary policies. Using a new, granular dataset for the UK government bond (gilt) market, we identify preferred habitat behaviour directly from the amount of variation investors allow in the average duration of their gilt portfolios. We find investors with particular duration habitats exist across the yield curve. These investors can be reasonably proxied by specific sectors - like foreign central banks, insurance companies and pension funds - and their behaviour conforms to a number of predictions from preferred habitat theory.