Who Holds Sovereign Debt and Why It Matters

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 twenty 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 out-sized 9\% increase if non-bank investors are absent. We conclude that these sovereigns are vulnerable to losing non-bank investors.