Return Predictability in the Treasury Market: Real Rates, Inflation, and Liquidity / Carolin E. Pflueger, Luis M. Viceira.

Format:

Book

Author/Creator:

Pflueger, Carolin E.

Contributor:

National Bureau of Economic Research.

Viceira, Luis M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16892.

NBER working paper series no. w16892

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

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:

Print version record

March 2011.