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

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

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.

Suggested Citation

  • Vayanos, Dimitri & Guibaud, Stéphane & Nosbusch, Yves, 2013. "Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt," CEPR Discussion Papers 9407, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9407
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    More about this item

    Keywords

    Clientele effects; Debt management; Government debt; Interest rates; Preferred habitat;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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