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Bond market clienteles, the yield curve and the optimal maturity structure of government debt.

By Stéphane Guibaud, Yves Nosbusch and Dimitri Vayanos

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 life cycle 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. But while a welfare-maximizing government caters to clienteles, it does not accommodate fully their demand, and limits issuance of long-term bonds to a level where these earn negative expected excess returns

Topics: HG Finance
Publisher: Department of Finance, London School of Economics and Political Science
Year: 2010
OAI identifier: oai:eprints.lse.ac.uk:29785
Provided by: LSE Research Online
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