Bond Supply Expectations and the Term Structure of Interest Rates

62 Pages Posted: 1 Jul 2020

See all articles by Monica Billio

Monica Billio

University of Venice - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia

Filippo Busetto

European Central Bank (ECB)

Alfonso Dufour

ICMA Centre, Henley Business School, University of Reading

Simone Varotto

ICMA Centre - Henley Business School, University of Reading

Date Written: June 19, 2020

Abstract

We are the first to explore the empirical relationship between interest rates and debt supply expectations derived from Treasury press releases. We find that news on expected government bond supply affects bond yields, but only when the news is an accurate reflection of future supply. We exploit the difference in news accuracy between German and Italian press releases to illustrate our findings. Estimates of a macro term-structure model confirm that accurate expected supply is a significant factor behind the timevariation of bonds’ risk premia. Our findings support term-structure models that account for imperfect asset substitutability and preferred-habitat investors.

Keywords: Expected Supply, Quantitative Easing, Term Structure, Interest Rates, Government Bonds

JEL Classification: G01, G12, E43, E41, E51, E52, E58

Suggested Citation

Billio, Monica and Billio, Monica and Busetto, Filippo and Dufour, Alfonso and Varotto, Simone, Bond Supply Expectations and the Term Structure of Interest Rates (June 19, 2020). Available at SSRN: https://ssrn.com/abstract=3631320 or http://dx.doi.org/10.2139/ssrn.3631320

Monica Billio

University of Venice - Department of Economics ( email )

Fondamenta San Giobbe 873
Venezia 30121
Italy
+39 041 234 9170 (Phone)
+39 041 234 9176 (Fax)

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

HOME PAGE: http://www.unive.it/persone/billio

Filippo Busetto

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Alfonso Dufour

ICMA Centre, Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Simone Varotto (Contact Author)

ICMA Centre - Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
56
Abstract Views
367
rank
461,032
PlumX Metrics