TY  - JOUR
AU  - Greenwood,Robin
AU  - Vayanos,Dimitri
TI  - Bond Supply and Excess Bond Returns
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13806
PY  - 2008
Y2  - February 2008
UR  - http://www.nber.org/papers/w13806
L1  - http://www.nber.org/papers/w13806.pdf
N1  - Author contact info:
Robin Greenwood
Harvard Business School
Baker Library 267
Soldiers Field
Boston, MA 02163
Tel: 617/495-6979
Fax: 617/496-8443
E-Mail: rgreenwood@hbs.edu

Dimitri Vayanos
Department of Finance, OLD 3.41
London School of Economics
Houghton Street
London WC2A 2AE
UNITED KINGDOM
Tel: +44 (0)20 7955 6382
Fax: +44 (0)20 7955 7420
E-Mail: d.vayanos@lse.ac.uk
AB  - 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 term spread and the Cochrane-Piazzesi factor, (iii) the effects of supply are stronger for longer maturities, and (iv) following periods when arbitrageurs have lost money, both supply and the term spread are stronger predictors of excess returns.
ER  -