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Government Bonds and their Investors

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Author Info

  • 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. Carmen M. & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," Working Paper Series WP11-10, Peterson Institute for International Economics.
  2. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2010. "Large-scale asset purchases by the Federal Reserve: did they work?," Staff Reports 441, Federal Reserve Bank of New York.
  3. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  4. 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.
  5. Papaioannou, Elias & Portes, Richard & Siourounis, Gregorios, 2006. "Optimal currency shares in international reserves: The impact of the euro and the prospects for the dollar," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 508-547, December.
  6. 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.
  7. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  8. Kiichi Tokuoka, 2010. "The Outlook for Financing Japan's Public Debt," IMF Working Papers 10/19, International Monetary Fund.
  9. 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 1041, Board of Governors of the Federal Reserve System (U.S.).
  10. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2007. "The Demand for Treasury Debt," NBER Working Papers 12881, National Bureau of Economic Research, Inc.
  11. John D. Burger & Francis E. Warnock, 2006. "Local Currency Bond Markets," NBER Working Papers 12552, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Serkan Arslanalp & Raphael W. Lam, 2013. "Outlook for Interest Rates and Japanese Banks’ Risk Exposures under Abenomics," IMF Working Papers 13/213, International Monetary Fund.
  2. Habib, Maurizio Michael & Stracca, Livio, 2013. "Foreign investors and risk shocks: seeking a safe haven or running for the exit?," Working Paper Series 1609, European Central Bank.
  3. Ippei Fuijwara & Lena Mareen Korber & Daisuke Nagakura, 2013. "Asymmetry in Government Bond Returns," Finance Working Papers 23399, East Asian Bureau of Economic Research.
  4. Ippei Fuijwara & Lena Mareen Korber & Daisuke Nagakura, 2013. "Is there asymmetry in the distribution of government bond returns in developed countries?," AJRC Working Papers 1301, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  5. Gianluca Cafiso, 2013. "Public-Debt Financing in the case of External Debt," Working Papers 2013-37, CEPII research center.
  6. Broner, Fernando A & Erce, Aitor & Martin, Alberto & Ventura, Jaume, 2013. "Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out Effects," CEPR Discussion Papers 9761, C.E.P.R. Discussion Papers.
  7. Peter Claeys & Borek Vasicek, 2012. "Measuring Sovereign Bond Spillover in Europe and the Impact of Rating News," Working Papers 2012/07, Czech National Bank, Research Department.
  8. Elif Arbatli & C. Emre Alper & Jiri Jonas & Anke Weber & Marc Gerard & Tidiane Kinda & Giovanni Callegari & Anna Shabunina & Andrea Schaechter & Carlos Caceres, 2012. "A toolkit for Assessing Fiscal Vulnerabilities and Risks in Advanced Economies," IMF Working Papers 12/11, International Monetary Fund.
  9. Aitor Erce, 2013. "Sovereign debt crises: could an international court minimize them?," Globalization and Monetary Policy Institute Working Paper 142, Federal Reserve Bank of Dallas.
  10. Laura Jaramillo & Yuanyan Sophia Zhang, 2013. "Real Money Investors and Sovereign Bond Yields," IMF Working Papers 13/254, International Monetary Fund.
  11. Creedon, Conn & Fitzpatrick, Trevor & Gaffney, Edward, 2012. "Ireland’s External Debt: Economic and Statistical Realities," Economic Letters 12/EL/12, Central Bank of Ireland.
  12. Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2013. "Banks, government bonds, and default: what do the data say?," Economics Working Papers 1378, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2014.
  13. Serkan Arslanalp & Takahiro Tsuda, 2012. "Tracking Global Demand for Advanced Economy Sovereign Debt," IMF Working Papers 12/284, International Monetary Fund.
  14. Fernando Broner & Aitor Erce & Alberto Martin & Jaume Ventura, 2013. "Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out," IMF Working Papers 13/270, International Monetary Fund.

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