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Federal Reserve Bank of Atlanta
FRB Atlanta CQER Working Paper
Affine term structure pricing with bond supply as factors
Fumio Hayashi
Abstract

This paper presents a theoretical model for analyzing the effect of the maturity structure of government debt on the yield curve. It is an ATSM (affine term structure model) in which the factors for the yield curve include, in addition to the short rate, the government bond supply for each maturity. The supply shock is not restricted to be perfectly correlated across maturities. The effect on the yield curve of a bond supply shock that is local to a maturity is largest at the maturity. This hump-shaped response of the yield curve persists in spite of the absence of preferred-habitat investors.


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Fumio Hayashi, Affine term structure pricing with bond supply as factors, Federal Reserve Bank of Atlanta, FRB Atlanta CQER Working Paper 2016-1, 01 Apr 2016.
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Keywords: ATSM; yield curve; portfolio balance channel; supply of government bonds; impulse responses
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