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Real Money Investors and Sovereign Bond Yields

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  • Laura Jaramillo
  • Yuanyan Sophia Zhang
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    Abstract

    Experience from the global financial crisis suggests that countries’ borrowing costs are not solely determined by macro and fiscal fundamentals. Factors such as ownership structures of government securities, among others, also play a significant role. This paper investigates the effect of “real money investorsâ€â€”domestic nonbanks and national and foreign central banks—on bond yields for a sample of 45 advanced and emerging market economies. The results show that, while bond yields rise with the debt to GDP ratio, this increase is partly offset if this debt falls in the hands of real money investors. Nonetheless, for some countries there is the risk that such ownership structure could change over the long run, which would impose upward pressure on borrowing costs, especially where fiscal positions are weak.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/254.

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    Length: 24
    Date of creation: 19 Dec 2013
    Date of revision:
    Handle: RePEc:imf:imfwpa:13/254

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    Related research

    Keywords: Investment; Bonds; Nonbank financial sector; Central banks; Developed countries; Emerging markets; Economic models; bond yields; sovereign bond; government bond yields; international finance; bond market; international capital; bond spreads; bond prices; corporate bond; international financial statistics; financial institutions; international finance statistics; term bonds; long-term bonds; sovereign bonds; government bond market; financial markets; long-term bond yield; treasury bonds; treasury bond yields; domestic financial institutions; nominal interest rate; financial stability; supply of bonds; demand for bonds; local currency bond markets; financial corporations; bond funds; domestic government bond;

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    1. Jochen R. Andritzky, 2012. "Government Bonds and their Investors," IMF Working Papers 12/158, International Monetary Fund.
    2. Kaminska, Iryna & Vayanos, Dimitri & Zinna, Gabriele, 2011. "Preferred-habitat investors and the US term structure of real rates," Bank of England working papers, Bank of England 435, Bank of England.
    3. 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.).
    4. Richard Herd & Vincent Koen & Ila Patnaik & Ajay Shah, 2011. "Financial Sector Reform in India: Time for a Second Wave?," OECD Economics Department Working Papers 879, OECD Publishing.
    5. Thomas Laubach, 2003. "New evidence on the interest rate effects of budget deficits and debt," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-12, Board of Governors of the Federal Reserve System (U.S.).
    6. Laura Jaramillo & Anke Weber, 2012. "Bond Yields in Emerging Economies," IMF Working Papers 12/198, International Monetary Fund.
    7. Giannetti, Mariassunta & Laeven, Luc, 2011. "The Flight Home Effect: Evidence from the Syndicated Loan Market During Financial Crises," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8337, C.E.P.R. Discussion Papers.
    8. Vayanos, Dimitri & Vila, Jean-Luc, 2009. "A Preferred-Habitat Model of the Term Structure of Interest Rates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7547, C.E.P.R. Discussion Papers.
    9. António Afonso & Christophe Rault, 2010. "Short and Long-run Behaviour of Long-term Sovereign Bond Yields," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2010/19, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
    10. Iva Petrova & Michael G Papaioannou & Dimitri Bellas, 2010. "Determinants of Emerging Market Sovereign Bond Spreads," IMF Working Papers 10/281, International Monetary Fund.
    11. Vincent Reinhart & Brian Sack, 2000. "The Economic Consequences of Disappearing Government Debt," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 163-220.
    12. Kiichi Tokuoka, 2010. "The Outlook for Financing Japan's Public Debt," IMF Working Papers 10/19, International Monetary Fund.
    13. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2007. "The Demand for Treasury Debt," NBER Working Papers 12881, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Serkan Arslanalp & Tigran Poghosyan, 2014. "Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies," IMF Working Papers 14/27, International Monetary Fund.

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