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Real Money Investors and Sovereign Bond Yields

  • Laura Jaramillo
  • Yuanyan Sophia Zhang
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    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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    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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    1. Laura Jaramillo & Anke Weber, 2012. "Bond Yields in Emerging Economies: It Matters What State You Are In," IMF Working Papers 12/198, 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 435, Bank of England.
    3. Jochen R. Andritzky, 2012. "Government Bonds and their Investors: What Are the Facts and Do they Matter?," IMF Working Papers 12/158, International Monetary Fund.
    4. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2007. "The Demand for Treasury Debt," NBER Working Papers 12881, National Bureau of Economic Research, Inc.
    5. Kiichi Tokuoka, 2010. "The Outlook for Financing Japan's Public Debt," IMF Working Papers 10/19, International Monetary Fund.
    6. Giannetti, Mariassunta & Laeven, Luc, 2011. "The Flight Home Effect: Evidence from the Syndicated Loan Market During Financial Crises," CEPR Discussion Papers 8337, C.E.P.R. Discussion Papers.
    7. Thomas Laubach, 2003. "New evidence on the interest rate effects of budget deficits and debt," Finance and Economics Discussion Series 2003-12, Board of Governors of the Federal Reserve System (U.S.).
    8. Iva Petrova & Michael G Papaioannou & Dimitri Bellas, 2010. "Determinants of Emerging Market Sovereign Bond Spreads: Fundamentals vs Financial Stress," IMF Working Papers 10/281, International Monetary Fund.
    9. Dimitri Vayanos & Jean-Luc Vila, 2009. "A Preferred-Habitat Model of the Term Structure of Interest Rates," NBER Working Papers 15487, National Bureau of Economic Research, Inc.
    10. 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.
    11. Daniel O. Beltran & Maxwell Kretchmer & Jaime R. Marquez & Charles P. Thomas, 2012. "Foreign holdings of U.S. Treasuries and U.S. Treasury yields," International Finance Discussion Papers 1041, Board of Governors of the Federal Reserve System (U.S.).
    12. 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.
    13. António Afonso & Christophe Rault, 2010. "Short and Long-run Behaviour of Long-term Sovereign Bond Yields," Working Papers Department of Economics 2010/19, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
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