Exploring the Performance of Government Debt Issuance

Abstract

The financial performance of governments in issuing debt is an open empirical question. We develop performance measures for the decisions debt management offices (DMOs) face: The amount to issue is largely exogenous to them, but they determine its distribution across issue dates (timing) and the choice of instruments (allocation). For a unique dataset of five European DMOs, we apply our measures to assess DMOs' issuance strategies with respect to prevailing market rates, their country's credit spread, or the mispricing between primary and secondary markets. With a single exception, we find no ability to outperform secondary markets. We do find evidence of increased volatility. Most importantly, Austria, France, and Italy time primary-market effects negatively: While not underpricing issues severely, they allot more volume on dates of higher underpricing compared to other DMOs. Thus, although government issuance shows no strong impact on secondary markets, DMOs need to take primary-market effects into account.

Keywords: government debt, issuance, timing effect, allocation effect

JEL Classification: H63, G1, E4, C1