Long-term Investors, Demand Shifts, and Yields

Kristy Jansen

Working Papers from DNB

Abstract: I use detailed data on bond and swap positions of pension funds and insurance companies (P&Is) in the Netherlands to study demand shifts and their causal effect on government bond yields. In particular, I exploit a reform in the regulatory discount curve that makes liabilities more sensitive to changes in the 20-year interest rate but less so to longer maturity rates. Following the reform, P&Is reduced their longest maturity holdings but increased those with maturities close to 20 years. The aggregate demand shift caused a substantial steepening of the long-end of the yield curve. Using the regulatory reform as an exogenous shock to estimate the demand elasticities of various investors in the government bond market, I show that the banking sector is most price elastic and primarily responsible for absorbing demand shocks. My findings indicate that the regulatory framework of long-term investors spills over to other sectors and directly affects the governments’ cost of borrowing.

Keywords: demand shifts; insurance companies; pension funds; price elasticity of demand; regulatory constraints; yield curve (search for similar items in EconPapers)
JEL-codes: G12 G18 G22 G23 G28 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.dnb.nl/media/51te52sf/working_paper_no-769.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:769

Access Statistics for this paper

More papers in Working Papers from DNB Contact information at EDIRC.
Bibliographic data for series maintained by DNB ().