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Return and Maturity Relationships for Treasury Auctions : Evidence from Turkey

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  • Hakan Berument
  • M. Eray Yücel

Abstract

The relationship between the interest rate and the maturity of newly issued bonds provides information on the debt dynamics of an economy as well as on the sustainability of its debt. Such information is crucial especially for countries that have debt-rollover concerns due to financial stress and/or macroeconomic instability. This study investigates the relationship between treasury auction maturity, which also dictates the debt maturity, and auction interest rates. When the Turkish treasury auction data from 1988 to 2004 are analysed, a reciprocal linkage between auction interest rates and maturities can be observed, especially for the 1995-2000 period, when there were chronic high inflation, high political uncertainty, high public deficits and unsuc-cessful attempts at stabilisation. This suggests that under an adverse shock, the Treasury decreases the auction maturity in order not to in-crease interest rates too much. A change in this reciprocal relationship is also reported for the post-2001 era, which is characterised by decreasing inflation, higher political stability, lower public deficits and successful stabilisation attempts.

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Bibliographic Info

Paper provided by Bilkent University, Department of Economics in its series Departmental Working Papers with number 0511.

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Date of creation: 2005
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Handle: RePEc:bil:bilpap:0511

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  1. Robert J. Barro, 1995. "Optimal Debt Management," NBER Working Papers 5327, National Bureau of Economic Research, Inc.
  2. Hakan Berument & Aslý Günay, 2001. "Exchange Rate Risk and Interest Rate : A Case Study for Turkey," Departmental Working Papers 0110, Bilkent University, Department of Economics.
  3. Alberto Alesina & Alessandro Prati & Guido Tabellini, 1989. "Public Confidence and Debt Management: A Model and A Case Study of Italy," NBER Working Papers 3135, National Bureau of Economic Research, Inc.
  4. Francesco Giavazzi & Marco Pagano, 1989. "Confidence Crises and Public Debt Management," NBER Working Papers 2926, National Bureau of Economic Research, Inc.
  5. Drudi, Francesco & Giordano, Raffaela, 2000. "Default risk and optimal debt management," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 861-891, June.
  6. Hakan Berument & Kamuran Malatyali, 1999. "Determinants of interest rates in Turkey," Discussion Papers 9902, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  7. Calvo, Guillermo A & Guidotti, Pablo E, 1992. "Optimal Maturity of Nominal Government Debt: An Infinite-Horizon Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 895-919, November.
  8. Faruk Selcuk, 1997. "A Brief Account of the Turkish Economy, 1987-1996," Departmental Working Papers 971, Bilkent University, Department of Economics.
  9. Alessandro Missale & Olivier Jean Blanchard, 1991. "The Debt Burden and Debt Maturity," NBER Working Papers 3944, National Bureau of Economic Research, Inc.
  10. Berument, Hakan & Froyen, Richard T., 2006. "Monetary policy and long-term US interest rates," Journal of Macroeconomics, Elsevier, vol. 28(4), pages 737-751, December.
  11. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
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Cited by:
  1. Berument, Hakan & Dogan, Nukhet & Tansel, Aysit, 2008. "Macroeconomic Policy and Unemployment by Economic Activity: Evidence from Turkey," IZA Discussion Papers 3461, Institute for the Study of Labor (IZA).

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