Chris Dillow 

Systematic overpricing

Chris Dillow

Chris Dillow
Systematic overpricing

Bond investors have long been familiar with 'preferred habitat' theory. This is the idea that some investors prefer different types of bond: – pension funds, for example, want very long-dated ones while insurance companies prefer medium-dated ones. This means some bonds can become overpriced not because of speculative frenzy but because demand for them has increased from their particular client base. And they can stay overpriced because they are poor substitutes for other, apparently cheaper, bonds.

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