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http://ssrn.com/abstract=1709636
 
 

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Expected Returns in Treasury Bonds


Anna Cieslak


Duke University, Fuqua School of Business

Pavol Povala


Norges Bank Investment Management

January 12, 2015


Abstract:     
We study risk premium in US Treasury bonds. We decompose Treasury yields into inflation expectations and maturity-specific interest rate cycles, which we define as variation in yields orthogonal to expected inflation. The short-maturity cycle captures the real short-rate dynamics. Jointly with expected inflation, it comprises the expectations hypothesis (EH) term in the yield curve. Controlling for the EH term, we extract a measure of risk premium variation from yields. The risk premium factor forecasts excess bond returns in and out of sample and subsumes the common bond return predictor obtained as a linear combination of forward rates.

Number of Pages in PDF File: 60

Keywords: term premia, bond return forecasting factor

JEL Classification: E43, G12


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Date posted: November 15, 2010 ; Last revised: April 2, 2015

Suggested Citation

Cieslak, Anna and Povala, Pavol, Expected Returns in Treasury Bonds (January 12, 2015). Available at SSRN: http://ssrn.com/abstract=1709636 or http://dx.doi.org/10.2139/ssrn.1709636

Contact Information

Anna Cieslak (Contact Author)
Duke University, Fuqua School of Business ( email )
100 Fuqua Drive
Durham, NC 27708-0204
United States
919 660 7879 (Phone)
HOME PAGE: http://https://sites.google.com/site/ancieslak/
Pavol Povala
Norges Bank Investment Management ( email )
Bankplassen 2
P.O. Box 1179 Sentrum
Oslo, NO-0107
Norway
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