Sovereign debt
Ukraine strikes debt restructuring deal with main creditors
Agreement would see creditors accept 20% nominal haircut on $18bn worth of debt; finance minister and IMF head hail agreement and stress need for support among bondholders
Strategic default helps explain crises in advanced economies, ECB paper finds
Sovereign debt and financial re-allocation are linked by the use of government bonds as collateral on the interbank lending market, paper notes
BoJ’s Nakaso: ‘No serious problems’ with JGB liquidity
New data shows a drop in market depth, but QE is not threatened, says deputy governor
RBI paper explores challenges in public debt management
Research identifies a ‘narrow investor base’ as one hurdle and considers how to encourage greater participation from retail investors in the market for government securities
ECB researchers examine flight to safety during sovereign debt crisis
Working paper tracks geographical distribution of capital flight, finding different movements by intra-eurozone and external investors; movements ceased when OMTs were unveiled
ECB paper models joint default risk with fat tails
Researchers reject normal distribution in favour of one with fatter tails, find ‘unprecedented’ tail risks in 2011-12 fell sharply after the OMT announcement
IMF paper warns Japan’s QQE may hit the buffers in 2017
Bank of Japan may have to look for new forms of monetary stimulus as it runs up against a shortage of government bonds, which could begin to distort markets
IMF senior counsel explores legal frameworks for public debt management
Senior counsel at IMF’s legal department discusses the many trade-offs involved in designing the legal frameworks underpinning public debt management
Minutes show ECB happy to ‘look through’ volatility
Governing council carefully considered market volatility including the increase in government bond yields in June meeting, concluding it had not ‘materially altered’ economic outlook
Eurogroup calls emergency conference as Greece turns to ESM for help
Greece asks for two-year bailout programme from European Stability Mechanism, triggering yet another emergency Eurogroup meeting; ECB’s Cœuré admits exit from the euro is now possible
ECB’s Constâncio calls for eurozone to cut back on debt
ECB vice-president says deleveraging has proceeded slowly so far due to growth concerns; emphasises debt reduction ought to be done using diverse measures, but says primary surpluses are key
EU court rules OMTs are legal
ECB is vindicated as ECJ rules in favour of crisis measure that would see the central bank buy potentially unlimited amounts of sovereign debt to protect ‘singleness’ of monetary policy
Weidmann sees bond reversal as ‘a kind of re-normalisation’
Bundesbank president argues sell-off is a ‘correction of market overshooting’ in the wake of ECB asset purchases; insists volatility is ‘not exceptionally high’ at present
Fed taper could hit African sovereign credits hard, World Bank warns
Cross-continent trade agreement could help provide bigger markets and greater efficiencies, but African economies face tough times ahead with borrowing costs set to rise
Economists expect last-minute Greek deal
With Greek finances still looking close to collapse, Central Banking asks a group of economists what the consequences of a last-minute agreement or default might be
Draghi warns high volatility here to stay
Government bond yields continue to climb as Draghi says ‘we should get used to periods of higher volatility’ with interest rates on the floor; ECB keeps policy unchanged
IMF researchers highlight high cost of unnecessary fiscal consolidation
For countries with very low borrowing costs, allowing debt ratios to fall ‘organically’ via growth is likely to be less damaging to the economy than harsh austerity, authors say
Hungarian central bank to adopt new policy rate
From September it will use the rate on a new deposit facility with a longer maturity, to encourage banks to park funds with the government instead of the central bank
Euro tumbles as ECB accelerates asset purchases
Euro slides against the dollar as market reacts to ECB’s plan to ‘moderately front-load’ its asset purchases; Cœuré concerned by ‘rapidity’ of price reversal in sovereign bonds
Bank of Canada plans changes to operating framework
Changes would see Canadian central bank cut back on purchase of government bonds through primary market, while intervening less frequently in overnight market
BoJ paper finds QQE has not ‘significantly’ damaged bond market liquidity
Researchers compile set of liquidity indicators, finding that while government bond market liquidity has not declined significantly, it has been on a downward trend since easing was ramped up
BIS economists say investor behaviour key to understanding EM challenges
Hyun Song Shin and Philip Turner consider implications of shift in financial intermediation for emerging markets; part of wider Banque de France review on the subject
Spanish paper analyses financial innovation in sovereign debt
Working paper published by the Bank of Spain studies how financial innovation in sovereign debt markets can increase a country’s level of private investment and welfare
Varoufakis defends reshaped Greek reform agenda
Greek finance minister says extension bought time for a ‘serious conversation’ with creditors and outlines ways in which he wants reforms to differ from troika prescriptions