Sovereign debt
Output gap in euro area is much larger than official estimates – paper
Official estimates predict output gap 3–4% less negative than author’s results; current models do not “adequately capture” inflation developments
‘Moral suasion’ and yield-seeking intensified sovereign debt crisis – ECB paper
Researchers use information on 226 eurozone banks; publicly owned, recently bailed-out and less strongly capitalised banks engaged increased sovereign bond holdings during crisis
IMF paper examines impact of debt restructurings on growth
Growth usually declines after debt restructurings, but it can boost performance if the country exits a default spell, the authors find
Post-Brexit gilt auctions met with strong demand
Trends in gilt yields show UK debt still seen as ‘safe haven’ asset, says one analyst; others attribute strong demand in this week’s auctions to range of factors
Sri Lanka appoints new central bank governor
Arjuna Mahendran leaves central bank after enduring a turbulent 18 months; president appoints economist Indrajit Coomaraswamy as his successor
Lagarde encouraged Paris Club to broaden membership as South Korea joins
South Korea becomes 21st member of creditor country group; speaking at its 60th anniversary Lagarde stresses the value of expanding further
Asian central banks shift bond funds towards local currency debt
Eleven East Asia-Pacific central banks agree to close fund for buying US dollar debt issued in the region and invest the money in local currency debt instead
DMO will not change course after Brexit vote
Head of the UK Debt Management Office stresses principles of predictability and transparency ahead of gilt auctions next week; market reaction to S&P’s downgrade was “extremely muted”
Brexit wrong-foots some reserve managers
The sharp sell-off of UK assets following its decision to leave the European Union will create buying opportunities for others
Irish paper proposes three-phase model of volatility in bond markets
Irish paper finds ‘good’, ‘bad’ and ‘ugly’ phases in eurozone sovereign debt markets from 2003 to 2014; crisis not caused by changes to the shock mechanism, but by pre-existing cross-country links
Sri Lankan governor will not seek reappointment until inquiry passes
Arjuna Mahendran says he will not apply for reappointment until the parliamentary committee publishes the findings of a probe into bond issuance; his first term expires on June 30
Micro factors affect Italian banks’ sovereign debt purchases, paper argues
Italian banks’ sovereign debt purchases strongly affected by their balance sheet needs, Bank of Italy researchers argue; size of bank a key factor
Weidmann: GDP-linked bonds an ‘avenue worth exploring’
Eurozone countries should explore merits of GDP-linked bonds, Bundesbank president argues; says move could help revision of sovereign risk weightings and cites Bank of England work
Eurobonds could be double-edged sword, researchers say
Banque de France researchers propose a new model of banks’ holdings of own-country sovereign debt; high holdings deter moral hazard but may exacerbate crises, they say
Researchers propose new measure for US fixed-income market liquidity
Authors say it is the first index to apply financial stress indicator methodologies to both US government and corporate debt securities
Germany needs structural surplus, Weidmann says
Bundesbank president counters arguments Germans are saving too much; says treatment of eurozone sovereigns must change, at odds with Bank of Italy governor
Ugandan deputy calls for caution in forecasting deficits
Louis Kasekende warns inflation could be threatened if governments lose access to the market and are unable to meet their borrowing requirements, turning to the central bank instead
Visco wary of changing regulation on sovereign exposures
Italian governor acknowledges sovereign exposures are not risk-free, but questions logic to changing prudential rules
ECB paper models influence of financial fragmentation on eurozone crisis
Working paper published by ECB models the influence of financial fragmentation on three key stages in the eurozone crisis
RBI deputy outlines ‘key tasks’ for market development
Harun Khan lays out the main areas of work in broadening financial markets, including efforts to improve liquidity and access and improving central bank communication around debt management
Kuroda: Negative rates having ‘visible’ impact on JGB yields
Bank of Japan governor Haruhiko Kuroda says rates are falling across the yield curve, falling negative up to a maturity of “around” 10 years; sees effects spreading in future
Stressed governments persuade banks to increase bond buying, paper finds
European governments under fiscal stress persuaded domestic banks to increase their holdings of sovereign debt, a paper from The Netherlands Bank finds
Denmark focuses on long-dated issuance amid low rates
National Bank of Denmark’s 2016 debt issuance strategy uses long maturities to reduce interest rate risk as low rates hold down costs; return to more normal footing after last year’s suspension
Book notes: Debtonator, by Andrew McNally
A lucid book questioning society’s bias towards debt and against equity