Return predictability in the treasury market
Subtitle: real rates, inflation, and liquidity
By: Carolin E. Pflueger, Luis M. Viceira
Contributors: Viceira, Luis M.; Harvard Business School
Edition: Revised edition].
Series: Working paper / Harvard Business School -- 11-094; Working paper (Harvard Business School) -- 11-094
Publisher: Harvard Business School
Published: 2013
Place of publication: Boston]
Language: eng
Number of pages: 36
Work titles: Empirical decomposition of risk and liquidity in nominal and inflation-indexed government bonds
Description: Estimating the liquidity differential between inflation-indexed and nominal bond yields, we separately test for time-varying real rate risk premia, inflation risk premia, and liquidity premia in U.S. and U.K. bond markets. We find strong, model independent evidence that real rate risk premia and inflation risk premia contribute to nominal bond excess return predictability to quantitatively similar degrees. The estimated liquidity premium between U.S. inflation-indexed and nominal yields is systematic, ranges from 30 bps in 2005 to over 150 bps during 2008-2009, and contributes to return predictability in inflation-indexed bonds. We find no evidence that bond supply shocks generate return predictability.
Notes: "March 2011. (Revised September 2013.)"--Publisher's Web site.

Revision of An empirical decomposition of risk and liquidity in nominal and inflation-indexed government bonds.

Includes bibliographical references (pages 32-36).