Government debt holdings of non-residents – an analysis of the impact on selected emerging economies’ sovereign risk

This paper adds to the literature on the impact of non-residents’ activity in the markets for sovereign debt issued by emerging economies. The conducted study indicates that there exists a statistically significant long-run relationship between the amount of emerging countries’ debt held by foreign investors and the level of yields on that debt. An inflow of non-residents equivalent to a 1-percent increase of the value of their sovereign emerging countries’ debt portfolio induces a decline in yields on bonds issued by those countries by slightly more than 3 basis points. The cointegration analysis has been additionally performed separately for each of the following sub-categories of foreign investors: foreign official sector, foreign banks, and other foreign investors, taking advantage of the dataset made available by Arslanalp and Tsuda (2014). The obtained results indicate that the above mentioned relationship exists with respect to the latter two sub-categories only.