Bond Supply and Excess Bond Returns

@article{Greenwood2008BondSA,
  title={Bond Supply and Excess Bond Returns},
  author={R. Greenwood and Dimitri Vayanos},
  journal={Public Economics: National Budget},
  year={2008}
}
We examine empirically how the maturity structure of government debt affects bond yields and excess returns. Our analysis is based on a theoretical model of preferred habitat in which clienteles with strong preferences for specific maturities trade with arbitrageurs. Consistent with the model, we find that (i) the supply of long- relative to short-term bonds is positively related to the term spread, (ii) supply predicts positively long-term bonds' excess returns even after controlling for the… Expand
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