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Expected Returns in Treasury Bonds

60 Pages Posted: 15 Nov 2010 Last revised: 2 Apr 2015

Anna Cieslak

Duke University, Fuqua School of Business

Pavol Povala

Date Written: January 12, 2015


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.

Keywords: term premia, bond return forecasting factor

JEL Classification: E43, G12

Suggested Citation

Cieslak, Anna and Povala, Pavol, Expected Returns in Treasury Bonds (January 12, 2015). Available at SSRN: or

Anna Cieslak (Contact Author)

Duke University, Fuqua School of Business ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States
919 660 7879 (Phone)

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No contact information is available for Pavol Povala

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