Risk and Return in Government Bonds, with Matteo Leombroni and Adi Sunderam, 2026

Does the compensation investors require for holding government bonds vary with their risk? We measure expected excess returns using market yields and professional forecasts of future yields, showing that they are tightly linked to a standard measure of risk: bonds' betas with respect to the stock market. In a month-by-maturity panel of U.S. Treasuries from 1988 to 2024, the correlation between expected excess returns and bond--stock betas is 67%. The correlation is driven by variation in market yields rather than forecasters’ expectations. The relationship between realized excess returns and betas is weak in a univariate regression, but it becomes economically large and significant when we control for monetary-policy and macroeconomic forecast errors. Similar results obtain in an international panel of developed countries from 1989 to 2024. Our findings suggest that variation in risk premia driven by changing bond risk accounts for more than half of both the decline in U.S. long-term bond yields since the mid-1980s and their increase since 2020.

Global Hegemony and Exorbitant Privilege, with Pierre Yared, 2026

- revise and resubmit Review of Financial Studies - BFI Summary - FAZ (in German) 

We present a dynamic two-country model in which military spending, geopolitical dominance, and government bond prices are jointly determined. The model reflects three facts: hegemons enjoy a funding advantage, this advantage rises with geopolitical tensions, and war losers devalue their debts more. In the model, greater bond revenue enables military investment, in turn increasing the safety value of bonds to international investors. Debt capacity strengthens the hegemon’s military and financial advantage but introduces steady-state multiplicity and fragility. With intermediate capacity, initial conditions determine the hegemon. However, with high capacity, self-fulfilling bond market expectations can trigger hegemonic transitions and geopolitical fragility.