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

66 Pages Posted: 3 Apr 2013

See all articles by Stéphane Guibaud

Stéphane Guibaud

SciencesPo - Department of Economics

Yves Nosbusch

London School of Economics & Political Science (LSE)

Dimitri Vayanos

London School of Economics; Center for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: March 2013

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.

Keywords: clientele effects, debt management, government debt, interest rates, preferred habitat

JEL Classification: E43, G11, G12, H21, H63

Suggested Citation

Guibaud, Stephane and Nosbusch, Yves and Vayanos, Dimitri, Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt (March 2013). CEPR Discussion Paper No. DP9407, Available at SSRN: https://ssrn.com/abstract=2244087

Stephane Guibaud (Contact Author)

SciencesPo - Department of Economics ( email )

28 Rue des Saints-Pères
Paris, 75007
France

Yves Nosbusch

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Dimitri Vayanos

London School of Economics ( email )

A350
Houghton Street
London WC2A 2AE
United Kingdom
+44 (0)20 7955 6382 (Phone)
+44 (0)20 7955 7420 (Fax)

Center for Economic Policy Research (CEPR)

London
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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