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Title: Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt

Author(s): Stéphane Guibaud, Yves Nosbusch and Dimitri Vayanos

Publication Date: March 2013

Keyword(s): clientele effects, debt management, government debt, interest rates and preferred habitat

Programme Area(s): Financial Economics and International Macroeconomics

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.

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Bibliographic Reference

Guibaud, S, Nosbusch, Y and Vayanos, D. 2013. 'Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9407