Real Money Investors and Sovereign Bond Yields

25 Pages Posted: 20 Jan 2014

See all articles by Laura Jaramillo

Laura Jaramillo

International Monetary Fund (IMF)

Y. Sophia Zhang

International Monetary Fund (IMF)

Date Written: December 2013

Abstract

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.

Keywords: Investment, Bonds, Nonbank financial sector, Central banks, Developed countries, Emerging markets, Economic models, Public Debt, Government Bonds, Investor Base, Advanced Market Economies, Emerging Market Economies, bond yields, sovereign bond, government bond yields, international finance, bond market, international capital, bond spreads, bond prices, corporate bond, international financial statistics, financial institutions, international finance statistics, term bonds, long-term bonds, sovereign bonds, government bond market, financial markets, long-term bond yield, treasury bonds, treasury bond yields, domestic financial institutions, nominal interest rate, financial stability, supply of

JEL Classification: E44, G11, G15, H63

Suggested Citation

Jaramillo, Laura and Zhang, Y. Sophia, Real Money Investors and Sovereign Bond Yields (December 2013). IMF Working Paper No. 13/254, Available at SSRN: https://ssrn.com/abstract=2381852

Laura Jaramillo

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Y. Sophia Zhang

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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