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| Author: | Reschreiter, A. |
| Title: | Conditional funding costs of inflation-indexed and conventional government bonds |
| Journal: | Journal of Banking and Finance
2004 : JUN, VOL. 28:6, p. 1299-1318 |
| Index terms: | Financial markets Bonds Public sector Costs Models United Kingdom |
| Language: | eng |
| Abstract: | This paper employs the predictability of monthly excess returns of U.K. conventional and index-linked gilts (hereafter as: gts.) to study the risk premiums of nominal and real bonds. The estimates of a single-latent-variable model suggest that indexed gts. of medium and long maturities require half the risk compensation of conventional gts. The government can significantly reduce its long run borrowing costs through issuing inflation index-linked debt, however, the inflation indexation of bonds with maturities less than 3 yrs. does not significantly reduce their risk compensation. |
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