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Public Debt Management and the Evolving Market for (Ultra-)Long Government Bonds

Listed author(s):
  • Hans J. Blommestein
  • Gert Wehinger

The demand for long-dated bonds has increased, driven by stricter asset-liability matching regulations governing pension funds, new international accounting standards, as well as new risk-based regulations for insurance companies. In several countries, pension funds and insurance companies are important investors in long-dated bonds. Projections of rapidly ageing and longer-living populations in most OECD countries indicate that the demand for ultra-long paper is poised to grow further. Governments in several OECD countries have responded to that demand, by starting or re-introducing the issuance of very long (20 to 30 years) and ultra-long (30 years and longer) bonds, provided that the issuance of those bonds is consistent with the cost-risk objectives of the minimisation of borrowing cost subject to a preferred level of risk. Consequently, there has been an increase in the supply of (ultra-)long bonds as a percentage of total bonds outstanding in many markets. An important consideration for issuers is that pension funds and insurance companies are to an important degree buy-and-hold investors. This may lead to illiquid markets in long-dated paper when the ongoing supply of (ultra-)long government bonds remains below a certain critical level, resulting in higher government borrowing costs than paper issued in liquid markets. From a medium-term strategic issuers’ perspective, a liquid market in (ultra-)long bonds requires substantial and regular issues by government debt managers. Changes in regulatory standards and the adoption of new international reporting standards have increased the focus on liability-driven investing by pension funds. The study concludes that it is likely that there will be some re-allocation of the assets of many pension funds and insurance companies toward (ultra-)long bonds. However, views differ as to the pace and magnitude of such a re-allocation.résumé La gestion de la dette publique et l’évolution du marché des titres d’État à (ultra) long terme La demande d’obligations à échéances éloignées a augmenté, sous l’effet de plusieurs facteurs : durcissement de la réglementation relative à la congruence des actifs et des passifs applicables aux fonds de pension, nouvelles normes comptables internationales et nouvelles réglementations fondées sur les risques pour les sociétés d’assurance. Dans plusieurs pays, les fonds de pension et les sociétés d’assurance sont de gros investisseurs en obligations à échéances éloignées. Les projections faisant état d’un vieillissement rapide des populations et de l’allongement de l’espérance de vie dans la plupart des pays de l’OCDE indiquent que la demande de titres à ultra long terme ne peut que s’accroître encore. Les gouvernements de plusieurs pays de l’OCDE réagissent à cette demande en introduisant ou réintroduisant des émissions de titres à très long terme (20 à 30 ans) et à ultra long terme (30 ans et plus), dès lors que ces émissions sont cohérentes avec leurs objectifs ‘coût-risque’ de minimisation du coût d’emprunt pour un niveau de risque préféré. On a donc assisté sur de nombreux marchés à une augmentation de l’offre d’obligations à (ultra) long terme en pourcentage de l’encours total d’obligations. Considération importante pour les émetteurs, les fonds de pension et les sociétés d’assurance sont dans une large mesure des investisseurs qui suivent une politique de type « acheter pour conserver ». Cela peut conduire à des marchés illiquides des titres à échéances éloignées lorsque l’offre de titres d’État à (ultra) long terme reste inférieure à un certain seuil critique, ce qui accroît les coûts d’emprunt des pouvoirs publics par rapport aux titres émis sur des marchés liquides. Du point de vue des émetteurs ayant une stratégie à moyen terme, un marché liquide des obligations à (ultra) long terme suppose des émissions substantielles et régulières de la part des gestionnaires de la dette publique. L’évolution des normes réglementaires et l’adoption des nouvelles normes de communication financière ont accru la tendance des fonds de pension à orienter leurs investissements en fonction de leurs engagements. Selon les conclusions de l’étude, on assistera probablement à une certaine réallocation des actifs de nombreux fonds de pension et sociétés d’assurance au profit des obligations à (ultra) long terme. Néanmoins, les avis divergent quant au rythme et à l’ampleur de ce phénomène.

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Article provided by OECD Publishing in its journal Financial Market Trends.

Volume (Year): 2007 (2007)
Issue (Month): 2 ()
Pages: 201-238

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Handle: RePEc:oec:dafkab:5l4cr9f8q2f6
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