In Search of Habitat

Abstract

We perform portfolio-level analyses to understand insurance firms preferred habitat behavior in the government bond market. Based on portfolio durations and portfolio weights across maturities, we find that interest rate risk exposures of insurers portfolios are related to their operating liabilities and financing constraints.We show that this habitat behavior significantly affects bond pricing. During the "quantitative easing"era, bond purchases by the Federal Reserve have a larger impact on the yields of Treasury bondswith a higher habitat demand. (JEL E43, E52,G11, G12, G23)