Public Debt Management Forum and U.S. Treasury Roundtable on Treasury Markets and Debt Management Held at IMF HeadquartersPress Release No. 13/233
June 26, 2013
Senior debt managers, treasury officials, and central bankers from 40 advanced and emerging market economies, together with private market participants and academics, met in Washington, D.C., on June 19–20, 2013 for the 13th International Monetary Fund Public Debt Management Forum and 3rd U.S. Treasury Roundtable on Treasury Markets and Debt Management. Senior representatives from the Inter-American Development Bank, the European Bank for Reconstruction and Development, and the World Bank also participated (see agenda). In her opening remarks, Ms. Nemat Shafik, Deputy Managing Director of the IMF, said: “The global financial crisis brought to light a number of previously underappreciated interconnectedness and vulnerabilities in both the financial and sovereign spheres. There are seismic shifts now at hand in global debt markets, and financial markets more generally, which have to be taken into account to keep markets liquid and deep.”
Participants discussed the definition and measurement of liquidity in government bond markets and the benefits of having a liquid bond market. Fostering liquid government bond markets is a key policy objective for debt management, but it also involves trade-offs. In countries where the priority is market access to ensure that the government’s financing needs are met, liquidity might be sacrificed in favor of offering diverse products demanded by non-traditional investors. Mr. Luc Everaert, Assistant Director of the IMF’s Monetary and Capital Markets Department, said that “Debt managers play an important role in determining liquidity, while flexibility in times of stress is critical to maintain market access.”
The role of the investor base in determining government bond market liquidity was also discussed. The increased interconnectedness of global capital markets, the associated cross-border investments, and non-conventional monetary policies have induced investors to search for higher yields, having a profound impact on the composition of the investor base for government debt in the past decade. As a result, holdings by non-resident investors increased for most countries, although there has been some reversal of this trend in some of the euro area countries. Participants also discussed the potential impacts of regulatory changes in the financial system and the unwinding of the unconventional monetary policies on the liquidity of government debt.
In advanced economies, the liquidity of government bond markets appears to have decreased somewhat. There are now more buy-and-hold investors as a result of increased exposure by foreign central banks and sovereign wealth funds, as well as regulatory changes, which require larger holdings of high-quality assets. For emerging markets, local government bond markets have seen improved liquidity as a result of the increase in the non-resident private investors. However, it was emphasized that these developments were not without risk given the heightened potential for a sudden capital outflow. Debt managers noted the need to prepare for such an event and manage it carefully. To mitigate the risk of non-resident investor outflows, debt managers have extended average maturities, built cash buffers, and diversified their investor base, while increasing flexibility in debt management operations.
As the world enters uncharted territory with respect to the exit from unconventional monetary policy, participants agreed that efforts to strengthen the resilience of debt portfolios and to foster deep and liquid debt markets will continue to be a priority.