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Abstract
This dissertation attempts to explain the demand for long-term bonds. Prior literature has shown that the demand from long-term investors is positive. It does not investigate, however, if the replication of long-term bonds by shorter maturities is feasible. Our rationale for a certain investment clientele to invest into bonds with different maturities derives from constraints on investment policies. These constraints make redundant (in an unconstrained world) assets non-substitutable. We show that long-term bonds are indeed ‘special’—the long-term investors need them to reach their global optimum within the constraints. We also demonstrate that the recent decision by U.S. Treasury to stop issuing the 30-year Treasury bond will have adverse welfare implications for constrained investors.
