IMF Working Papers

Tracking Global Demand for Advanced Economy Sovereign Debt

By Serkan Arslanalp, Takahiro Tsuda

December 3, 2012

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Serkan Arslanalp, and Takahiro Tsuda. Tracking Global Demand for Advanced Economy Sovereign Debt, (USA: International Monetary Fund, 2012) accessed December 7, 2024
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

Recent events have shown that sovereigns, just like banks, can be subject to runs, highlighting the importance of the investor base for their liabilities. This paper proposes a methodology for compiling internationally comparable estimates of investor holdings of sovereign debt. Based on this methodology, it introduces a dataset for 24 major advanced economies that can be used to track US$42 trillion of sovereign debt holdings on a quarterly basis over 2004-11. While recent outflows from euro periphery countries have received wide attention, most sovereign borrowers have continued to increase reliance on foreign investors. This may have helped reduce borrowing costs, but it can imply higher refinancing risks going forward. Meanwhile, advanced economy banks’ exposure to their own government debt has begun to increase across the board after the global financial crisis, strengthening sovereign-bank linkages. In light of these risks, the paper proposes a framework—sovereign funding shock scenarios (FSS)—to conduct forward-looking analysis to assess sovereigns’ vulnerability to sudden investor outflows, which can be used along with standard debt sustainability analyses (DSA).  It also introduces two risk indices—investor base risk index (IRI) and foreign investor position index (FIPI)—to assess sovereigns’ vulnerability to shifts in investor behavior.

Subject: Banking, Financial institutions, Foreign banks, Government debt management, Government securities, Public debt, Public financial management (PFM), Securities

Keywords: Book value, Debt market, Financial Crises, Foreign banks, Foreign investor, Global, Government debt, Government debt management, Government securities, International Finance, Investment Decisions, Investor base, Investor holding, Portfolio Choice, Risk index, Securities, Sovereign bond, WP

Publication Details

  • Pages:

    62

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/284

  • Stock No:

    WPIEA2012284

  • ISBN:

    9781475596403

  • ISSN:

    1018-5941

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