An Empirical Study On The Impact Of Demand-supply Factor Of Government Bond On Interest Rate Term Structure

Term structure of interest rates plays an important role in the monetary policy transmission,prediction of macroeconomic variables' future trends and financial asset prices,which make factors affecting the term structure of interest rates and the relationship between the term structure of interest rates and macroeconomic variables become research focus of economics and finance.Foreign study finds that changes in the demand and supply of Government bond can have an impact on the term structure of interest rates.In other words,the supply of Government bond is Investor's total potential investment funds.As an important part of the process of interest rate liberalization in China,the Third plenary session of the 18 th CPC central Committee proposed that "sound the yield curve reflecting market supply and demand",designed to let the yield curve determined by supply and demand become the effective benchmark of interest rate,perfecting the central bank's market-oriented way to adjust interest rates.Therefore,studying the relationship between demand-supply factor of government bond and interest rate term structure in China would be of important significance.Firstly,this article theoretically analyzes the impact of the supply and demand of government bond on the term structure of interest rates using the preferred-habitat model,found that supply and demand factors affect the term structure of interest rates by changing the risk premium of short-term interest rates.Then,we construct Macro-finance Model of the Interest Term Structure which contains variables of the supply and demand of government bond,which extends Macro-finance Model of the Interest Term Structure used to analyze the relationship between macroeconomic variables and the term structure of interest rate models.And we have an empirical study on the impact of supply and demand of China's Treasury bonds on the term structure of interest rates using China's yields,financial institutions' loan balance and other macroeconomic data during 2008-2016.In order to do real one step estimates,we estimate the model's parameters using the maximum likelihood estimation,and make impulse response analysis and the variance decompositions analysis.Research results show that the demand had no significant effecton term structure of interest rates,while the supply have significant positive effects on the term structure of interest rates in China,whith indicates that term structure of China's government bond interest rates is not effectively reflect changes in demand,and the increase in bond supply on the one hand affects the interest rate term structure transmission channels of monetary policy,on the other hand will increase the cost of financing the Government.Based on this conclusion,we proposed to perfect market base of term structure of interest rates,build coordination mechanisms between public debt management and monetary policy and optimizing government investment and financing policies.In the end,we present the shortcomings and prospects for future research methods and content.Since there are many variables included in the model,so variables reflecting maturity distribution characteristics of supply and demand hasn't been introduced,and the choice of such variables and data sources are limited,which is to be perfected in future studies,in addition,it can be take into account that the government debt have an impact on the term structure of interest rates when researching the appropriateness of government debt,because rising yields also means increases in government debt financing costs.