Sovereign debt
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
Fiscal dominance can invert transmission mechanism, Lahiri and Patel find
Authors show ‘statutory liquidity requirement’ and fiscal dominance can invert the effects of monetary policy or render it impotent; suggest ‘rebalancing’ India’s reform agenda
Rajan flags pitfalls of short-term thinking
RBI governor extols the virtues of macroeconomic stability, defending the central bank’s strict stance on inflation and calling on the government to stick to its fiscal consolidation plans
Haircuts on sovereign debt ‘open the door for more leverage’, research finds
Prolonged low interest rates also contribute to an overleveraged economy in case of crisis; though in times of ‘low crisis’ they can help decelerate fiscal adjustment
ECB paper quantifies spillover from sovereign to corporate credit risk
Research studies direct spillover effects using credit default swaps and data on 226 firms from 15 European countries in aftermath of first Greek bail-out
Hungarian central bank eases by scrapping deposit facility
The central bank announces the closure of its two-week deposit facility in April, in a move it hopes will lead banks to buy government bonds and lower long-term yields
RBI sheds new light on debt management strategy
Central bank unveils more detailed approach to communicating debt management plans, laying out a medium-term strategy that will be updated each year
Bank of Japan tweaks QQE with maturity extension and new ETF purchases
BoJ will continue to buy 80 trillion yen worth of JGBs a year, but with slightly longer to run to maturity; announces new ETF programme to offset sales of old stocks