The maturity of sovereign debt issuance in the Euro area

R.M.W.J. Beetsma, M. Giuliodori, J. Hanson, Frank de Jong

Research output: Contribution to journalArticleScientificpeer-review

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.
Original languageEnglish
JournalJournal of International Money and Finance
Publication statusAccepted/In press - Sep 2020

Keywords

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

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