The Maturity of Sovereign Debt Issuance in the Euro Area

53 Pages Posted: 20 Jun 2019

See all articles by Roel M. W. J. Beetsma

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Massimo Giuliodori

University of Amsterdam - Faculty of Economics & Econometrics (FEE); Tinbergen Institute

Jesper Hanson

University of Amsterdam; Dutch Ministry of Finance

Frank de Jong

Tilburg University

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Date Written: June 19, 2019

Abstract

We use information on new sovereign debt issues in the euro area to explore the drivers behind the debt maturity decisions of governments. We set up a theoretical model for the maturity structure that trades off preference for liquidity services of short-term debt, roll-over risk and price risk. The average debt maturity is negatively related to both the level and the slope of the yield curve. A panel VAR analysis shows that positive shocks to risk aversion, the probability of non-repayment and the demand for the liquidity services of short-term debt all have a positive effect on the yield curve level and slope, and a negative effect on the average maturity of new debt issues. These results are partially in line with our theory. A forecast error variance decomposition suggests that changes in non-repayment risk as captured by credit default spreads are the most important source of shocks.

Keywords: maturity, euro-area public debt auctions, yield curve, liquidity services of short debt, risk aversion, expected repayment probability

JEL Classification: G11, G12, G18, E62

Suggested Citation

Beetsma, Roel M. W. J. and Giuliodori, Massimo and Hanson, Jesper and de Jong, Frank, The Maturity of Sovereign Debt Issuance in the Euro Area (June 19, 2019). Amsterdam Centre for European Studies Research Paper No. 2019/03 , Available at SSRN: https://ssrn.com/abstract=3406759 or http://dx.doi.org/10.2139/ssrn.3406759

Roel M. W. J. Beetsma (Contact Author)

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

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Tinbergen Institute ( email )

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Massimo Giuliodori

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

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Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Jesper Hanson

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Dutch Ministry of Finance ( email )

Netherlands

Frank De Jong

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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