Abstract
We document the effects of investor preferences for bonds with particular characteristics on their yields. Using a unique security-level dataset on institutional investors’ monthly holdings of Government of Canada bonds, we study the relationship between the net purchases of investors with different investment mandates and bond yield changes. We find considerable heterogeneity in the impact of net purchases and yield changes, depending both on the type of investor and on the duration of the bond. This provides support for the notion that different segments of the bond maturity spectrum are “inhabited” by particular types of investors and that their investment mandates partly determine the nature of the interaction between their purchases and yields.
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- 1.
Since the Act introduced penalties for funds considered to be underfunded, it provided strong incentives to hold the asset whose changes in value were most correlated with the present value of pension liabilities, namely, long-term real bonds.
- 2.
- 3.
Since our sample changes over time, some of the increase in GoC holdings is due to a certain investor moving the safekeeping of their GoC portfolio to the Bank of Canada, even if the portfolio may have already been purchased before the date when it is incorporated in the sample. Therefore, our analysis focuses on changes of holdings instead of the level of the holdings.
- 4.
Due to confidentiality restrictions, we are not able to reveal more details on the trading behavior of the custody clients of the Bank of Canada we used to classify our investors.
- 5.
Due to the sample coverage difference, the sample period for all foreign official investors is longer than both active and passive foreign official investors.
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Jin, J., Rivadeneyra, F., Sierra, J. (2018). Government Bond Clienteles and Yields. In: Bulusu, N., Coche, J., Reveiz, A., Rivadeneyra, F., Sahakyan, V., Yanou, G. (eds) Advances in the Practice of Public Investment Management. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-90245-6_14
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DOI: https://doi.org/10.1007/978-3-319-90245-6_14
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Publisher Name: Palgrave Macmillan, Cham
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