The Banking View of Bond Risk Premia

Valentin Haddad and David Sraer

No 26369, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Banks' balance-sheet exposure to fluctuations in interest rates strongly forecasts excess Treasury bond returns. This result is consistent with optimal risk management, a banking counterpart to the household Euler equation. In equilibrium, the bond risk premium compensates banks for bearing fluctuations in interest rates. When banks' exposure to interest rate risk increases, the price of this risk simultaneously rises. We present a collection of empirical observations supporting this view, but also discuss several challenges to this interpretation.

JEL-codes: G0 G12 G21 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-upt
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as VALENTIN HADDAD & DAVID SRAER, 2020. "The Banking View of Bond Risk Premia," The Journal of Finance, vol 75(5), pages 2465-2502.

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Related works:
Journal Article: The Banking View of Bond Risk Premia (2020)
Working Paper: The Banking View of Bond Risk Premia (2019)
Working Paper: The Banking View of Bond Risk Premia (2016)
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