Review of Financial Studies Vol. 26 No. 8 2013
Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt
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.
- DOI
- 10.1093/rfs/hht013
- Volume
- 26
- Issue
- 8
- Pages
- 1914-1961
- Language
- en
- Sources
- openalex crossref