Long-term Investors, Demand Shifts, and Yields

80 Pages Posted: 11 Aug 2021 Last revised: 24 Nov 2021

See all articles by Kristy A.E. Jansen

Kristy A.E. Jansen

Marshall School of Business - University of Southern California; De Nederlandsche Bank - Research Department

Date Written: August 8, 2021


I use detailed data on bond and derivative positions of pension funds and insurance companies (P&Is) in the Netherlands to study demand shifts and their causal effect on yields. In particular, I exploit a reform in the regulatory discount curve that makes liabilities more sensitive to changes in the 20-year interest rate but less so to longer maturity rates. Following the reform, P&Is reduced their longest maturity holdings but increased those with maturities close to 20 years. The aggregate demand shift caused a steepening of the long-end of the yield curve with a decrease in the 20-year yield of 10 basis points and an increase in the 30-year yield of 20 basis points. Similar effects on yields appear in a large panel of European countries after EU insurance regulation implemented the same reform. My findings have important policy implications, as they indicate that the regulatory framework of long-term investors directly affects the governments’ cost of borrowing.

Keywords: long-term investors, demand shifts, regulatory constraints, yield curve

JEL Classification: G12, G18, G22, G23, G28

Suggested Citation

Jansen, Kristy A.E., Long-term Investors, Demand Shifts, and Yields (August 8, 2021). Available at SSRN: https://ssrn.com/abstract=3901466 or http://dx.doi.org/10.2139/ssrn.3901466

Kristy A.E. Jansen (Contact Author)

Marshall School of Business - University of Southern California

701 Exposition Blvd
Los Angeles, CA 90089
United States

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam

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