Abstract

http://ssrn.com/abstract=1785842
 
 

Citations (10)



 


 



Return Predictability in the Treasury Market: Real Rates, Inflation, and Liquidity


Carolin E. Pflueger


University of British Columbia (UBC) - Division of Finance

Luis M. Viceira


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

September 26, 2013


Abstract:     
Estimating the liquidity differential between inflation-indexed and nominal bond yields, we separately test for time-varying real rate risk premia, inflation risk premia, and liquidity premia in U.S. and U.K. bond markets. We find strong, model independent evidence that real rate risk premia and inflation risk premia contribute to nominal bond excess return predictability to quantitatively similar degrees. The estimated liquidity premium between U.S. inflation-indexed and nominal yields is systematic, ranges from 30 bps in 2005 to over 150 bps during 2008-2009, and contributes to return predictability in inflation-indexed bonds. We find no evidence that bond supply shocks generate return predictability.

Number of Pages in PDF File: 50

Keywords: Term structure, Real interest rate risk, Inflation risk, Inflation-Indexed Bonds

JEL Classification: G12

working papers series





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Date posted: March 15, 2011 ; Last revised: September 27, 2013

Suggested Citation

Pflueger, Carolin E. and Viceira, Luis M., Return Predictability in the Treasury Market: Real Rates, Inflation, and Liquidity (September 26, 2013). Available at SSRN: http://ssrn.com/abstract=1785842 or http://dx.doi.org/10.2139/ssrn.1785842

Contact Information

Carolin E. Pflueger
University of British Columbia (UBC) - Division of Finance ( email )
2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
Luis M. Viceira (Contact Author)
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6331 (Phone)
617-496-6592 (Fax)
HOME PAGE: http://www.people.hbs.edu/lviceira
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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