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

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Publication Details

Output type: Journal article

Author list: Guibaud S, Nosbusch Y, Vayanos D

Publisher: Oxford University Press

Publication year: 2013

Journal: The Review of Financial Studies (0893-9454)

Volume number: 26

Issue number: 8

Start page: 1913

End page: 1961

Number of pages: 49

ISSN: 0893-9454

eISSN: 1465-7368

Languages: English-Great Britain (EN-GB)

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Open access status: green

Full text URL: http://eprints.lse.ac.uk/29785/1/DP669.pdf

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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