Conference Agenda

 
 
Session Overview
Session
AP 17: Government Bond Pricing
Time:
Saturday, 19/Aug/2023:
9:30am - 11:00am

Session Chair: Christian Wagner, WU Vienna University of Economics and Business
Location: 1A-33 (floor 1)


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Presentations
ID: 1351

Is the bond market competitive? Evidence from the ECB's asset purchase programme

Johannes Breckenfelder1, Pierre Collin-Dufresne2, Stefano Corradin3

1European Central Bank, Germany; 2EPFL; 3European Central Bank, Germany

Discussant: Philipp Lentner (WU Vienna)

We show that during the period of the Public Sector Purchase Program (PSPP) implemented by the Eurosystem, the prices of German sovereign bonds targeted by the PSPP increase predictably towards month-end and drop subsequently. We propose a sequential search-bargaining model that captures salient features of the implementation of the PSPP such as the commitment to buy within an explicit time horizon. The model can explain the predictable pattern as a result of imperfect competition between dealers that are counterparties to the Eurosystem. Motivated

by the model's predictions, we show that the price pattern is more pronounced (a) for bonds that are targeted by the PSPP, (b) for monthly windows where the Eurosystem has fewer counterparties, and (c) for monthly windows where the Eurosystem targets a larger amount of purchases. We discuss the implications of our analysis for future purchase programs.

EFA2023_1351_AP 17_1_Is the bond market competitive Evidence from the ECBs asset purchase programme.pdf


ID: 1900

Robust Difference-in-differences Analysis when there is a Term Structure

Jiri Woschitz1, Kjell G. Nyborg2,3,4

1BI Norwegian Business School, Norway; 2University of Zurich; 3Swiss Finance Institute; 4CEPR

Discussant: Karamfil Todorov (Bank for International Settlements)

It is common practice in finance to use difference-in-differences analysis to examine fixed-income pricing data. This paper uses simulations to show that this method applied to pricing variables that exhibit a term structure, such as yields or credit spreads, systematically produces false and mismeasured treatment effects. This holds true even if the treatment is randomly assigned. False and mismeasured treatment effects result from heterogeneous effects in different parts of the term structure in combination with unequal distributions of residual maturities in the treated and control bond samples. Neither bond fixed effects nor explicit yield-curve control in the specification resolve the issues.

EFA2023_1900_AP 17_2_Robust Difference-in-differences Analysis when there is a Term Structure.pdf


ID: 297

Shrinking the Term Structure

Damir Filipovic2, Markus Pelger1, Ye Ye1

1Stanford, United States of America; 2EPFL and Swiss Finance Institute

Discussant: Irina Zviadadze (HEC Paris)

We develop a conditional factor model for the term structure of Treasury bonds, which unifies non-parametric curve estimation with cross-sectional asset pricing. Our factors are investable portfolios and estimated with cross-sectional ridge regressions. They correspond to the optimal non-parametric basis functions that span the discount curve and are based on economic first principles. Cash flows are covariances, which fully explain the factor exposure of coupon bonds. Empirically, we show that four factors explain the discount bond excess return curve and term structure premium, which depends on the market complexity measured by the time-varying importance of higher order factors. The fourth term structure factor capturing complex shapes of the term structure premium is a hedge for bad economic times and pays off during recessions.

EFA2023_297_AP 17_3_Shrinking the Term Structure.pdf