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Government Bonds and their Investors

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  • Jochen R. Andritzky

Abstract

This paper introduces a new dataset on the composition of the investor base for government securities in the G20 advanced economies and the euro area. During the last decades, investors from abroad have increased their presence in government bond markets. The financial crisis broke this trend. Domestic financial institutions allocated a larger share of government securities in their portfolios, as Japan has done since its crisis in the 1990s. Increases in the share held by institutional investors or non-residents by 10 percentage points are associated with a reduction in yields by about 25 or 40 basis points, respectively. The data show a varied lead-lag relationship between bond yields and investor holdings. Portfolio balance estimates suggest that a change in statutory or regulatory holdings of government securities to the tune of 10 percent of the outstanding stock causes expected returns to decline by 7 to 25 basis points.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/158.

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Length: 30
Date of creation: 01 Jun 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/158

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Keywords: Public debt; Developed countries; Group of Twenty; government bonds; bond; bonds; government securities; bond yields; government bond; financial institutions; financial sector; government bond market; bond prices; government bond yields; treasury bonds; financial stability; bond markets; government bond markets; financial assets; bond market; international reserves; international capital; financial systems; bond returns; capital flows; treasury securities; risk aversion; domestic financial sector; local currency bond; debt stock; foreign bonds; marketable securities; corporate bonds; local currency bond markets; financial intermediaries; international capital flows; global bond; financial instruments; securities market; securities market value; bond yield; bond portfolios; hedging; bond issuance; domestic financial institutions; capital adequacy; outstanding debt stock; share of government bond; bond yield volatility; treasury bond; financial globalization; long-term bonds; private investors; capital adequacy ratios; financial economics; bond investments; bond purchases; outstanding bonds; term bonds; financial markets; bond market turbulence; crowding out; current account deficit; domestic government bonds; financial repression; excess liquidity; equity markets; sovereign bonds; domestic government bond; financial corporations; sovereign bond; management techniques;

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References

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  1. Daniel O. Beltran & Maxwell Kretchmer & Jaime Marquez & Charles P. Thomas, 2012. "Foreign holdings of U.S. Treasuries and U.S. Treasury yields," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1041, Board of Governors of the Federal Reserve System (U.S.).
  2. Paolo Mauro & Andrei A. Levchenko, 2006. "Do Some Forms of Financial Flows Help Protect From Sudden Stops?," IMF Working Papers 06/202, International Monetary Fund.
  3. Elias Papaioannou & Richard Portes & Gregorios Siourounis, 2006. "Optimal Currency Shares in International Reserves: The Impact of the Euro and the Prospects for the Dollar," NBER Working Papers 12333, National Bureau of Economic Research, Inc.
  4. Carmen M. Reinhart & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," NBER Working Papers 16893, National Bureau of Economic Research, Inc.
  5. John D. Burger & Francis E. Warnock, 2006. "Local Currency Bond Markets," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 7.
  6. Kiichi Tokuoka, 2010. "The Outlook for Financing Japan's Public Debt," IMF Working Papers 10/19, International Monetary Fund.
  7. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2010. "Large-scale asset purchases by the Federal Reserve: did they work?," Staff Reports, Federal Reserve Bank of New York 441, Federal Reserve Bank of New York.
  8. Francis E. Warnock & Veronica Cacdac Warnock, 2006. "International Capital Flows and U.S. Interest Rates," NBER Working Papers 12560, National Bureau of Economic Research, Inc.
  9. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2007. "The Demand for Treasury Debt," NBER Working Papers 12881, National Bureau of Economic Research, Inc.
  10. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, American Finance Association, vol. 7(1), pages 77-91, 03.
  11. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers, Federal Reserve Bank of St. Louis 2010-018, Federal Reserve Bank of St. Louis.
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