Expected returns in treasury bonds

• Autores: Anna Cieslak, Pavol Povala
• Localización: Review of Financial Studies, ISSN-e 1465-7368, Vol. 28, Nº. 10, 2015, págs. 2859-2901
• Idioma: inglés
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• Resumen

  • We study risk premium in U.S. Treasury bonds. We decompose Treasury yields into inflation expectations and maturity-specific interest-rate cycles, which we define as variation in yields orthogonal to expected inflation. The short-maturity cycle captures the real short-rate dynamics. Jointly with expected inflation, it comprises the expectations hypothesis (EH) term in the yield curve. Controlling for the EH term, we extract a measure of risk-premium variation from yields. The risk-premium factor forecasts excess bond returns in and out of sample and subsumes the common bond return predictor obtained as a linear combination of forward rates