Real Money Investors and Sovereign Bond Yields

Author/Editor:

Laura Jaramillo ; Yuanyan S Zhang

Publication Date:

December 19, 2013

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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 investors”—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.

Series:

Working Paper No. 13/254

Subject:

English

Publication Date:

December 19, 2013

ISBN/ISSN:

9781475548617/1018-5941

Stock No:

WPIEA2013254

Format:

Paper

Pages:

24

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