Bond Supply and Excess Bond Returns

Bond Supply and Excess Bond Returns

We examine empirically how the supply and maturity structure of government debt affect bond yields and expected returns. We organize our investigation around a term-structure model in which risk-averse arbitrageurs absorb shocks to the demand and supply for bonds of different maturities. These shocks affect the term structure because they alter the price of duration risk. Consistent with the mo...

Co-Movement, Spillovers and Excess Returns in Global Bond Markets∗

This paper investigates global term structure dynamics using a Bayesian hierarchical factor model augmented with macroeconomic fundamentals. More than half of the variation in bond yields of seven advanced economies is due to global co-movement, which is mainly attributed to shocks to non-fundamentals. Global fundamentals, especially global inflation, affect yields through a ‘policy channel’ an...

Sustainable investing and bond returns

Fiscal Imbalances and Bond Returns

Our goal is to understand the response of bond returns to the government’s fiscal imbalances. We offer a framework that defines fiscal imbalances and links them to returns on government bonds. We show that our measure of fiscal imbalances contains significant information about future returns on the government’s debt portfolio up to two years. We also show that fiscal imbalances have significant...

Macroeconomic Factors and the Correlation of Stock and Bond Returns

This paper examines the correlation between stock and bond returns. It first documents that the major trends in stock-bond correlation for G7 countries follow a similar reverting pattern in the past forty years. Next, an asset pricing model is employed to show that the correlation of stock and bond returns can be explained by their common exposure to macroeconomic factors. The link between the ...