Recent academic papers have shown that the Japanese sovereign debt situation is not sustainable. The puzzle is that the bond rate has remained low and stable. Some suggest that the low yield can be explained by domestic residents' willingness to hold Japanese government bonds (JGBs) despite its...

Although it has been well established that financial volatility is related to news and macroeconomic shocks, there has been less emphasis on the importance of underlying economic and political stability. In this paper we study the behavior of consol returns since 1729 and identify a...

From a macroeconomic perspective, the short-term interest rate is a policy instrument under the direct control of the central bank. From a finance perspective, long rates are risk-adjusted averages of expected future short rates. Thus, as illustrated by much recent research, a joint...

In the 1830s the British and American economies were hit by a series of shared macroeconomic shocks. This paper investigates the role of markets for Americas State bonds in Britain and the U.S. during and between the crises in 1837, 1839, and 1842. There is strong evidence that the crises in...

Despite powerful advances in yield curve modeling in the last twenty years, comparatively little attention has been paid to the key practical problem of forecasting the yield curve. In this paper we do so. We use neither the no-arbitrage approach, which focuses on accurately fitting the cross...

The sensitivity of long-term rates to short-term rates represents a puzzle for standard macro-finance models. Post-FOMC announcement drift in Treasury markets after Federal Funds target changes contributes to the excess sensitivity of long rates. Mutual fund investors respond to the salience of...

We identify a significant premium in the prices of Treasury floating rate notes (FRNs) relative to both Treasury bills and notes. This premium is directly related to the near-constant nature of FRN prices and differs from the liquidity and on-the-run premia in Treasury security prices previously...

We study the transmission of sovereign debt inflow shocks on domestic firms. We exploit episodes of large sovereign debt inflows in six emerging countries that are due to the announcements of these countries' inclusion in two major local-currency sovereign debt indexes. We show that these...

Governments face a trade-off between insuring bondholders and taxpayers. If the government decides to fully insure bondholders by manufacturing risk-free debt, then it cannot insure taxpayers against permanent macro-economic shocks over long horizons. Instead, taxpayers will pay more in taxes in...