Arbeitspapier
Convenient but risky government bonds
How does convenience yield interact with sovereign risk and the supply of government bonds? We propose a model of sovereign debt and default in which convenience yield arises because investors are able to pledge government bonds as collateral on financial markets. Convenience yield is dependent on the valuation of collateral, which is negatively dependent on the supply of government bonds, and haircuts that increase with sovereign risk. Calibrated to Italian data, convenience yield contributes substantially to the public debt-to-GDP ratio and can rationalise prolonged periods of negative bond spreads, even in the presence of default risk. We show that the debt elasticity of convenience yield is the most important driver of our results. Decomposing it into the debt elasticity of a collateral valuation and a haircut component, we find that, under empirically relevant conditions, a higher debt elasticity of haircuts can reduce fiscal discipline.
- ISBN
-
978-3-95729-946-8
- Sprache
-
Englisch
- Erschienen in
-
Series: Deutsche Bundesbank Discussion Paper ; No. 15/2023
- Klassifikation
-
Wirtschaft
Asset Pricing; Trading Volume; Bond Interest Rates
International Financial Markets
National Debt; Debt Management; Sovereign Debt
- Thema
-
Sovereign risk
convenience yield
haircuts
debt management
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Kaldorf, Matthias
Röttger, Joost
- Ereignis
-
Veröffentlichung
- (wer)
-
Deutsche Bundesbank
- (wo)
-
Frankfurt a. M.
- (wann)
-
2023
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Kaldorf, Matthias
- Röttger, Joost
- Deutsche Bundesbank
Entstanden
- 2023
Ähnliche Objekte (12)
Convenient but risky government bonds
Moral suasion in regional government bond markets
The effects of government bond purchases on leverage constraints of banks and non-financial firms
The joint dynamics of sovereign ratings and government bond yields
The German sub-national government bond market: evolution, yields and liquidity
Does non-interest income make banks more risky? Retail- versus investment-oriented banks
Does co-financing by multilateral development banks increase "risky" direct investment in emerging markets?
Decomposition of country-specific corporate bond spreads
Banks' holdings of risky sovereign bonds in the absence of the nexus: Yield seeking with central bank funding or de-risking?
Which banks are more risky? The impact of loan growth and business model on bank risk-taking
Implicit government guarantees and bank herding behavior
Risky sovereign bond holdings by commercial banks in the euro area : do safe assets availability and differences in bank funding costs play a role?
Convenient but risky government bonds
Moral suasion in regional government bond markets
The effects of government bond purchases on leverage constraints of banks and non-financial firms
The joint dynamics of sovereign ratings and government bond yields
The German sub-national government bond market: evolution, yields and liquidity
Does non-interest income make banks more risky? Retail- versus investment-oriented banks
Does co-financing by multilateral development banks increase "risky" direct investment in emerging markets?
Decomposition of country-specific corporate bond spreads
Banks' holdings of risky sovereign bonds in the absence of the nexus: Yield seeking with central bank funding or de-risking?
Which banks are more risky? The impact of loan growth and business model on bank risk-taking
Implicit government guarantees and bank herding behavior
Risky sovereign bond holdings by commercial banks in the euro area : do safe assets availability and differences in bank funding costs play a role?
Convenient but risky government bonds
Moral suasion in regional government bond markets
The effects of government bond purchases on leverage constraints of banks and non-financial firms
The joint dynamics of sovereign ratings and government bond yields
The German sub-national government bond market: evolution, yields and liquidity
Does non-interest income make banks more risky? Retail- versus investment-oriented banks
Does co-financing by multilateral development banks increase "risky" direct investment in emerging markets?
Decomposition of country-specific corporate bond spreads
Banks' holdings of risky sovereign bonds in the absence of the nexus: Yield seeking with central bank funding or de-risking?
Which banks are more risky? The impact of loan growth and business model on bank risk-taking
Implicit government guarantees and bank herding behavior