Price Pressure in the Government Bond Market: Long-term Impact of Short-term Advice

52 Pages Posted: 23 Feb 2020 Last revised: 7 Dec 2023

See all articles by Luis Ceballos

Luis Ceballos

University of San Diego

Damián Romero

Central Bank of Chile

Date Written: January 3, 2020

Abstract

This paper analyzes the systemic impact of massive pension funds' portfolio reallocations triggered by a financial advisory firm. We analyze the main channels by which government bond yields are affected and trace their impact on household financing costs. We document significant and persistent price pressure in the domestic government bond market after portfolio switching recommendations. Further, we find persistent changes in government yields, particularly in long-term inflation-linked bond yields, triggered by changes in the term premium component. Consistent with the relevance of inflation-linked bonds as the primary benchmark in setting interest rates, we find a substantial impact on households' financing costs.

Keywords: price pressure, bonds markets, term premium

Suggested Citation

Ceballos, Luis and Romero, Damián, Price Pressure in the Government Bond Market: Long-term Impact of Short-term Advice (January 3, 2020). Available at SSRN: https://ssrn.com/abstract=3513739 or http://dx.doi.org/10.2139/ssrn.3513739

Luis Ceballos (Contact Author)

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

HOME PAGE: http://www.luisceballoss.com/

Damián Romero

Central Bank of Chile

Publicaciones
Huerfanos 1185
Santiago
Chile

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