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Who holds sovereign debt and why it matters

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  • Xiang Fang
  • Bryan Hardy
  • Karen Lewis

Abstract

This paper studies the impact of investor composition on the sovereign debt market. We construct a data set of sovereign debt holdings by foreign and domestic bank, non-bank private, and official investors for 95 countries over 20 years. Private non-bank investors absorb disproportionately more sovereign debt supply than other investors. Moreover, non-bank investor demand is most responsive to the yield. Counterfactual analysis of emerging market sovereigns shows a 10% increase in debt leads to a 6.7% increase in costs, but an outsize 9% increase if non-bank investors are absent. We conclude that these sovereigns are vulnerable to losing non-bank investors.

Suggested Citation

  • Xiang Fang & Bryan Hardy & Karen Lewis, 2023. "Who holds sovereign debt and why it matters," BIS Working Papers 1099, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1099
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    Cited by:

    1. Fredy Gamboa-Estrada & Andrés Sánchez-Jabba, 2022. "The Effects of Foreign Investor Composition on Colombia’s Sovereign Debt Flows," Borradores de Economia 1222, Banco de la Republica de Colombia.
    2. Yusuf Soner Baskaya & Bryan Hardy & Ṣebnem Kalemli-Özcan & Vivian Yue, 2016. "Sovereign Risk and Bank Lending: Evidence from 1999 Turkish Earthquake," NBER Working Papers 22335, National Bureau of Economic Research, Inc.
    3. António Afonso & José Alves & Sofia Monteiro, 2023. "Banks’ portfolio of government debt and sovereign risk," Working Papers REM 2023/0289, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    4. Villamizar-Villegas, Mauricio & Arango-Lozano, Lucía & Castelblanco, Geraldine & Fajardo-Baquero, Nicolás & Ruiz-Sánchez, María Alejandra, 2022. "The effects of Monetary Policy on Capital Flows A Meta-Analysis," Working papers 93, Red Investigadores de Economía.
    5. Yusuf Soner Başkaya & Bryan Hardy & Ṣebnem Kalemli-Özcan & Vivian Z. Yue, 2023. "Sovereign Risk and Bank Lending: Theory and Evidence from a Natural Disaster," FRB Atlanta Working Paper 2023-01, Federal Reserve Bank of Atlanta.
    6. Mert Onen & Hyun Song Shin & Goetz von Peter, 2023. "Overcoming original sin: insights from a new dataset," BIS Working Papers 1075, Bank for International Settlements.
    7. Egemen Eren & Philip Wooldridge, 2022. "The role of non-bank financial institutions in cross-border spillovers," BIS Papers, Bank for International Settlements, number 129.
    8. Iñaki Aldasoro & Sebastian Doerr, 2023. "Who borrows from money market funds?," BIS Quarterly Review, Bank for International Settlements, December.
    9. Matteo Aquilina & Andreas Schrimpf & Karamfil Todorov, 2023. "CP and CDs markets: a primer," BIS Quarterly Review, Bank for International Settlements, September.
    10. Betz, Timm & Pond, Amy, 2023. "Democratic institutions and regulatory privileges for government debt," European Journal of Political Economy, Elsevier, vol. 79(C).
    11. Bryan Hardy & Sonya Zhu, 2023. "Covid, central banks and the bank-sovereign nexus," BIS Quarterly Review, Bank for International Settlements, March.
    12. Claudio Borio & Marc Farag & Fabrizio Zampolli, 2023. "Tackling the fiscal policy-financial stability nexus," BIS Working Papers 1090, Bank for International Settlements.

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    More about this item

    Keywords

    new borrowing; debt service; financial cycle; financial flows and real effects;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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